CUs' Business Lending Success Earns Ire Of Bankers, Local Media Coverage

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Three Spokane credit unions made headlines in a local newspaper because their business-lending programs were causing consternation among area banks. But are credit unions really a threat in the business-lending space?

The Credit Union Journal asked representatives of the credit unions what niche they see for credit unions - many of which are just now beginning to wade into the complicated world of commercial and/or business lending.

Scott Adkins, director of lending for Spokane Teachers CU, said "many" of the CU's 77,000 members have requested member business services.

"Most credit unions, and ours in particular, are driven to meet the needs of their members," he said. "We haven't done that 100% in the past, but we are hoping to do that on the business services side as well."

Spokane Teachers has done commercial real estate lending on a limited basis for years. Adkins said the STCU introduced business checking in 2002, and will be offering business loans and other business-related products this year.

"A broad number of members are interested in these business services. One part of our long-term strategic plan is to offer business services," he said.

Global Credit Union has more than 60,000 members-many of whom are self-employed, reports senior vice president Ron McKay.

"Many of those people own small businesses, some of which are sole proprietorships and some have perhaps a small number of employees," he said.

The problem many small businesses have is a lack of resources, McKay continued. The niche for CUs, he suggested, is the small, individual businessperson. "If we can supply them with products that fill their needs, or perhaps put them in touch with accounting people they need to talk to, we can be part of their network," he told The Credit Union Journal. "To that end, Global is looking at adding certain products that will broaden the scope of our offerings to the small business borrower."

Beware the Dark Side

McKay said Global is in the process of getting approved by the state to offer more business lending products. He said GCU has offered business checking in the past, but it has not been a large part of Global's portfolio.

"The biggest thing members want is real estate secured loans," he said. "We did over $39 million in member business loans last year, and we probably will expand our real estate lending this year."

"Service to the small business person is really what this is all about," said McKay.

Gene Fitzpatrick, vice president of lending for Numerica CU, warned credit unions to be aware of the commitment of time and money that is involved if they are looking to expand into commercial lending.

"As more credit unions enter the world of business banking, they will find it is very costly," he said.

Loan officers must interview the prospective lenders, analyze the applications, create documents and then calculate an interest rate that is fair to the member and the CU.

"I don't know if there truly is a niche," Fitzpatrick said. "I don't see there is a big, underserved market. Some institutions have gone to automated credit scoring because it is so darn costly to make, for example, a $40,000 equipment loan to a small business person."

Most banks are not making $20,000 and $30,000 loans because they are costly and risky, Fitzpatrick declared. "For any institution to do it right, it must have properly trained people. That means it must hire bankers to properly identify the risks," he said.

A 'Full Plate'

Numerica does not make business lending a priority focus, he said. The CU has a "full plate" of personal loans for homes and cars, as well as personal lines of credit. Numerica does some commercial lending, and has a $17-million portfolio, but Fitzpatrick said that amount primarily is made up of commercial real estate transactions, and few are under $100,000.

Recently, Numerica became the first CU in Washington state to be approved as an SBA (Small Business Administration) lender, which Fitzpatrick said will allow it to offer loans for members who qualify.

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