CU In Business Of Lending, Not Lending Technology

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ERIE, Penn.-Erie FCU is dipping a toe into member business lending (MBL), but the $320-million credit union says it has no business deploying MBL technology.

Erie FCU knows best practices in business lending-in 2009, the CU was recognized by the CUNA Lending Council and CUNA Mutual Group, in part for increasing loans 32% in 2008. Last year, the CU's business loan volume doubled, at a rate of about three loans per month, said Fred Tonty, CFO at the CU.

But Erie FCU doesn't have the kind of budget or volume it would take to justify in-house systems and staffing, said Tonty. "We want to provide business lending, but we aren't planning on lending $15-million or more per year."

A credit union would need to spend at least $500,000 up-front for MBL tools and an experienced staff that knows how to use the tools and underwrite and analyze the loans, according to Keystone Business Lending Solutions, a business lending CUSO in Wexford, Penn.

Erie FCU has shared staffing and technology expenses since 2007 with seven other CUs, ranging from $40-million to $650-million in assets, as part of Keystone. Erie FCU mails financial documents from the member business to Keystone, which employs an expert staff and loan origination, documentation, compliance and servicing automation to process the loan.

Keystone's origination and servicing tools are from PCFS 2000, a Brea, Calif.-based lending software provider to credit unions and government-guaranteed lenders. "We picked PCFS 2000 because it combines the front-end and the back-end," explained Wayne Grinnik, Keystone CEO. "No other system puts the entire process together, from application and financial spread to servicing, all on one server. You can just click a few links to flip the documents from an application to servicing."

Perhaps one downside to using a third-party system is that Erie FCU can't access member loans at will. "If a member asks me an off-the-wall question, I have to call Keystone first and ask them to run a query or report for me. I'd like to be able to get into the software and do whatever I want with the loan data."

In response, Keystone will provide self-service access to data this year, said Grinnik. The interfaces that could link CUs to the lending records are already available; Keystone just has to install them.

Keystone sends trial balances and daily activity reports to each member CU and subscriber, and the CUSO delivers custom reports such as pay-offs upon request, Grinnik continued. "Up until now, the size of the total portfolio hasn't been that large," so custom requests have been manageable, he said. But as the CUSO grows, that practice will require too much manual labor.

Keystone credit unions don't integrate their MBL data with their core systems, and loan volume is small enough that it probably isn't worth it, Tonty and Grinnik agreed. CU representatives can help each member business individually when questions or new opportunities arise.

"Our credit unions have taken a conservative approach and are comfortable with the size of their portfolios," Grinnik said. Total CUSO volume for 2009 was $44-million, he said.

Tonty doesn't particularly recommend Keystone to credit unions outside of the Western Pennsylvania region, he said. "With small business lending, you want to work with a lender that knows the area and the company that's applying for the loan. Otherwise, you can get yourself into some trouble."

"Regional underwriting is much safer than national underwriting," Grinnik confirmed. "The business' story, the economic climate, the market - that's half of the loan decision."

CUs "should find the closest regional CUSO," by contacting the Regional CUSO Alliance, he advised. The Alliance collaborates in business lending and represents 17 regional CUSOs across the nation.

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