A Few Credit Unions Try Hand at Commercial Lending

Entrepreneurs who call on their credit unions may hit upon financing and an array of packaged deposit services.

The Credit Union National Association says that about one of every 15 credit unions makes small commercial loans.

Credit union officials are quick to say they are not trying to compete with commercial banks, do not make large loans, and do not extend financing to nonmembers. Instead, they make modest business loans, generally up to $50,000, to meet member needs.

Along with lending, these credit unions are tailoring packages of deposit services for their members who run businesses. As business owners focus on costs, they find a no-fee checking account especially appealing.

1.1% of Total Loans

CUNA, a trade group based in Madison, Wis., reports that commercial loans accounted for 1.1% of total loan business at its member institutions in 1990. Agricultural loans accounted for 0.02% of the portfolio.

A trade group spokesman said the commercial loan base shrank when Rhode Island ordered privately insured credit unions closed at the first of the year. The five largest credit unions in Rhode Island had accounted for 20% of the commercial portfolio nationwide.

Credit unions that have taken the dip into commercial lending say the water is fine. Collins Credit Union in Cedar Rapids, Iowa, reports it finances a variety of retail and service businesses at one or two percentage point over the prime rate, which is 8.5%. By comparison, small-business owners in that area pay an average of 11% on bank loans.

In Keeping with Charter

Coast Central Credit Union, a 30,000-member institution in Eureka, Calif., services some 1,500 business accounts. A community-chartered institution, Coast Central "sticks close to our charter to serve the individual," said Anne Davis, director of marketing. "We deal with people as individuals first; if they own a business [as 4% do], then great."

Nearly four years ago, Coast Central began offering commercial services after one member was unable to satisfy his business needs at area banks.

The credit union offers three types of business checking based on account activity. The basic account carries no monthly fee, the account with moderate activity pays interest without a monthly fee or minimum balance requirement, and the largest account approximates an analysis account.

Lack of Aggressive Marketing

"We don't market the services aggressively," Ms. Davis said. "We don't take risks since we only lend to members and most of our loans are variable rate."

The $140 million-asset institution, which has nine branches, offers night deposit, merchant card services, coin and currency services, and a consumer Visa card that many small-business owners use.

Coast Central provides secured lines of credit for 12 months and term loans up to $100,000 for as long as 36 months. Commercial real estate loans are generally in the $50,000 range but can go as high as $100,000. They are generally used for small-office development and some residential construction.

Fewer Fees at Credit Unions

"We've got the reputation that a credit union will try to do what it can when members need financial services," Ms. Davis said.

Lucille Fiedler, manager of the $9.2 million-asset BFG Employees Woodburn Federal Credit Union, said small-business owners have been shifting accounts to her credit union to avoid bank charges.

"They were moving our checking and savings to us," she said, "and we felt like we had to honor their loan requests."

The Indiana credit union, which became community chartered nearly three years ago, serves a community of about 1,000 residents.

In addition to free checking, BFG offers a line of credit up to $20,000 for businesses no more than five years old, and up to $30,000 for more established firms.

Despite interest from individual members, many analysts believe small-business lending will remain limited among credit unions.

"There are still a relatively small number of credit unions interested," said Mike Welch, former president of the Society of Credit Union Executives and publisher of the Credit Union Times.

Ms. Franzoni, a freelance banking reporter, is based in Springfield, Mo.

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