SHREVEPORT, La.--To fill a void created by financials that have backed away from small-to-medium size business loans in this state, and to gain economies of scale, seven Louisiana credit unions have formed a business lending CUSO.
Called Business Alliance Financial Services (BAFS), the group has been operating since January and has seen healthy demand, according to Richard Guillot, BASF president. "In the first three months, with only three of our credit unions up on our system, we processed 30 to 45 apps, with the average loan being $200,000 to $250,000."
Guillot acknowledged that the activity is greater than projected, but it follows an examination of the Louisiana market that indicated there is a void in small-to-medium size business loans. The asset sizes of BAFS credit unions, each equal owners in the CUSO, range from $80 million to $850 million. By coming together they save personnel, system, and processing costs.
"If you tried to find seven different executives to individually provide credit unions with the skill and expertise to work within the business community and make sound loans, the cost would be significant," Guillot said.
Guillot has 25 years of commercial underwriting and business development experience, and before that was head of credit administration for a large regional bank in north Louisiana. BASF also has a VP of operations who has more than 20 years of loan documentation and servicing experience. The CUSO is in the process of hiring a commercial underwriter. Guillot estimated that by forming the CUSO, each CU is spending about 20% of the money they would if they ramped up business lending on their own. He would not disclose BASF's operating costs.
Not only will the CUSO provide efficiencies, but flexibility through loan participations. "Let's say we have a viable credit opportunity that is too large for one CU. We have six other credit unions through which we can participate the loan," Guillot said. "The aggregate asset size of all seven credit unions is $2.7 billion."
The initial underwriting and credit management process in handled by BAFS, as well as loan documentation, post-credit analysis, and servicing. But the final credit decision lies with each CU's MBL committee. "Our CUSO provides the credit analysis, recommendations, and all of the information the credit union needs to make the decision."
Guillot believes BAFS has taken the steps to not only assess but mitigate commercial lending risk, but added that the CUSO will "walk before we run. Because there are so many opportunities in the marketplace, we'll be very selective at first in the credit we choose to look at and underwrite."
BAFS will also offer savings to its credit unions down the road if they advertise. Right now, Guillot emphasized that the best way BAFS can sell itself is through results. "The business community talks to one another. You do a good job, respond to members' needs, and they will talk. The majority of your business loans come by referral."
Participating CUs are: ANECA FCU and Barksdale FCU, both Shreveport; Carter FCU Springhill; Centric FCU, West Monroe; E FCU and Neighbors FCU, both Baton Rouge; and CSE FCU, Lake Charles. Guillot said BAFS will eventually welcome other credit unions, but probably not before the end of the year.
