Software Behind CU's Increase In Biz/Ag Lending

An "interactive, proactive" relationship with borrowers is enabled in part by credit risk technology at this $238-million credit union.

According to Shawn Good, branch manager at Mennonite Savings and CU (MSCU), THE 114,000-member CU's commercial/ag loan portfolio was at $111 million last year, an increase of more than $12 million from 2001. (All figures in this story are in U.S. dollars.) The CU is known for its low loan-loss ratios, which it credits to responsible borrowers and a skilled lending staff, said Good.

"Our small and medium enterprise members are very bankable, and other institutions would be happy to have them," he added.

Indeed, many credit unions in the U.S. and Canada have set their sights on cultivating commercial lending as the next growth area to pursue.

ClearCredit, piloted at MSCU for three months on a web services platform by Kitchener, Canada-based Covarity, Inc., automates financial statement gathering, credit risk analysis, and financial reporting for small and medium sized enterprise (SME) credit products, said Good.

How The Process Works

MSCU opened up the product to general business clientele in January.

MSCU's business borrowers upload their historic and month-to-month financials to ClearCredit's database to create and update accounts.

"Members don't need to generate a paper form and drop it off on my desk," Good said. "Instead, the information is uploaded to a database that we can both access."

Real-time updating puts to shame the typical paper-based process, said Good.

"Commercial lending is typically reactive based on last fiscal period, as opposed to what's happening today," he added, "and that's a point of friction for our borrowers."

With growing SME's in particular, Good continued, credit unions need to pay attention to changing financial winds. "As a result of growing sales, a lot of pressure comes to bear on operating facilities, inventory, and receivables."

With ClearCredit, business members are able to make educated choices in considering lines of credit. Borrowers themselves can quickly and easily produce financial projections, reports, and analysis, Good said.

"The tool will do ratio analysis and trending for members," he explained. "For example, borrowers can see the impact that inventory changes will have on cash flow and operating requirements."

Good's interactive relationship with his business members leaves everyone "feeling like we're on the same team," he observed.

In addition, the technology saves time required for the lending process, recently putting Good and a business owner/member two months ahead of schedule. For example, once members have uploaded financials, ClearCredit also auto-populates forms, such as liability information profiles.

Proactive Lending

Through real-time risk analysis and alerts, business members and MSCU are able to head off account breaches at the pass, fostering a proactive approach to lending, said Good.

"Under the lender summary function, I can look at all the accounts that are offside," he explained. "Then, through trending reports, I can see whether we're going to be off-side by year end."

"My expectation would be that ClearCredit will help us more quickly identify problems that might arise," Good said. "I, as a lender, could tell the borrower that projections say he'll be in a pinch in six months. We can set up a solution proactively."

ClearCredit is available to CUs at $10,000 for setup, plus a $60 fee per account per month.