ST. LOUIS-A tiny CU here has entered into a loan participation agreement with a much larger credit union to help meet demand for microenterprise loans.
Phil Minden, chairman for the $450,000 Choices FCU, said the community development financial institution simply needed some help. "We were getting a lot of requests from our members for the loans but we are limited in our ability to provide all the products and services they need."
The $212-million St. Louis Community CU has been Choice's mentor since the small CDFI opened for business six years ago. "We talked to them to see if there was anything they could do," said Minden. "Turns out they had an interest in microenterprise lending and wanted to support the local economy."
What came out of the conversation was a collaboration agreement in which SLCCU, also a CDFI, will purchase a 90% participation in each of the small loans Choices originates. "This allows us to get into offering this type of loan and mitigate risk," noted Minden.
CFCU received a $15,000 grant from a local foundation that Minden said will be used to fund loan loss reserves for the microenterprise loans. "That covers the 10% we'll hold onto and gave the regulators and our board a level of comfort to offer this type of loan to our members."
Minden said Choices will pass almost 100% of microenterprise loan applicants seeking more than $7,500 directly onto St. Louis Community. SLCCU lending guidelines apply on all the loans. "They have a greater level of sophistication in underwriting these types of loans," Minden said.
Getting Its Feet Wet
Limiting the loans to $7,500 and keeping only 10% on the books allows Choices to base the loan decision more on the member than the proposed business plan, "which is what we feel more comfortable with," said Minden.
The new program lets Choices get its feet wet with microenterprise lending and develop skills necessary to eventually make the loans on its own, Minden said. Choices hopes to take over the program in two years with a microenterprise portfolio near $250,000 and possibly an additional staff member. CFCU has one full-time employee, CEO/manager Kathy Schweitzer, and a part-timer to work the front line. "This is a growing opportunity in the St. Louis area because banks have pulled out of small business lending," Minden explained.
Michael O'Brien, St. Louis Community SVP and CMO said the agreement "is a natural fit. It leverages the resources of both credit unions. We both serve the urban markets here in St. Louis, low- to moderate-income consumers, and small business entrepreneurs who need a lift. The need here is great, and the more credit unions can collaborate on efforts like this the better off credit unions, members, and the economy will be."
