Eastern Financial Florida Credit Union is putting significant resources behind the rollout of a new business services CUSO aimed at serving other credit unions' needs, in addition to its own.
A team of veteran ex-bankers with commercial lending experience is already in place at the $1.8 billion Eastern Financial, which is calling the new entity CU Business Capital, LLC. While the venture is a start-up, it's been in the works for two years, according to VP Gary Lanier, and was put into motion after EFFCU discovered it was doing a lot of business lending "disguised as home equity lines of credit."
Nine employees have been hired, with Bert Bryan, who has 26 years in commercial lending, as CEO. Roberto Barrocas (29 years experience) has been named senior VP-chief lending officer, and Arnold Altman (33 years experience) has been named senior VP-chief credit officer-risk management. Plans are to grow the staff to 12.
"We've had a business checking product in place," said Lanier. "When members were coming in and taking out some huge home equity lines we started asking them what they planned to use the funds for. They were going elsewhere when we couldn't fill the need."
Altman acknowledged that a number of business services solutions have been offered to credit unions in recent years, especially from the corporate credit union network, but stressed CU Business Capital's experience in commercial services and in managing risk will be clear differentiators, as will its expertise in cash management services. He added it also has the benefit of watching the industry to see what others are offering.
"One thing that will differentiate us from other credit unions is that they have a problem in software," said Lanier. "Their software will not let them handle (business accounts). Our platform is on the Fidelity system and it lets us handle the account, and the credit union just gets a monthly general ledger entry from us."
Barrocas originally began working with Eastern Financial as a consultant doing training of EFFCU staff for 18 months. "It was exciting to get to see what the needs were," said Barrocas. "There is a great, proven need for this. I think we're going to be very successful in going out and soliciting other credit unions to do this with us."
Altman noted introducing a CUSO the size of CU Business Capital requires resources to launch, with Lanier stating that start-up costs are in the neighborhood of $500,000. "Not all credit unions are our size and can afford to set up the infrastructure," said Altman.
Barrocas said the CUSO will be able to provide services faster "and a lot cheaper" than other credit unions could do on their own.
But why launch a CUSO to serve a market that Barrocas and Altman readily agree "banks are all over?"
"I think the banks focus on the relationships that are most profitable to them," said Altman. "One of our missions is to provide these services to companies that are owned by our members or somehow related to our members."
"Banks tend to segment everything," added Barrocas. "We do the whole gamut. Banks serve stockholders; that's what drives them. We start (business loans) at $5,000. Banks won't do that deal. We do it and hope they will grow."
Lanier said the only areas where CU Business Capital is hesitant to enter are markets that are speculative, such as the condominium market, which is enormous in Florida.
According to Barrocas, credit unions can invest in the CUSO. The goal is to have at least some tier one investors, which will include a seat on the board. Discounts on services will be offered to those investors. The second option is to join as a subscriber and pick the services the credit union wants to use.
"It may be that they just want us to come in and talk to them on how to talk to small business," said Barrocas. "It's easy to talk to small business-you just have to listen. Small business owners like to talk. We may also help with scripting and with the times to call on businesses. They may want to hire us to teach them to underwrite loans."
Altman noted that most commercial loans require an annual review, another service the CUSO will be able to provide.
Altman said even in cases where CU Business Capital performs an analysis for a credit union on a particular deal, the credit union will still make the call on whether to underwrite the loan, in addition to having to train the respective boards on what makes for a good loan.
The CUSO will offer loan participations, some of which will be bought by Eastern Financial Florida CU.
While the CUSO is operating out of Eastern Financial Florida's offices near the Everglades, the CUSO's services are not limited to South Florida, or even Florida, for that matter. Initial efforts will concentrate on the Southeast and Eastern seaboard, although the cash management services may be marketed nationally. CU Business Capital will make its debut publicly during this week's NAFCU annual convention.
"With proper underwriting business lending can be a very valuable service added to the cadre of services a credit union has," said Altman. "Membership growth is double at credit unions that have a business lending function, and you can cross sell them into other business services."
Lanier said one misconception some credit unions continue to have is that they can hire someone with business lending experience and hang out a shingle.
"One of the things that makes me think we are on the right track is we have brought in the talent and invested in the infrastructure," said Lanier. "We have ex-bankers who see the potential of credit unions."
