Banks and credit unions may be perennially at odds in Washington, but things are different in at least one struggling Massachusetts mill town.
In Lawrence, six banks and four credit unions have joined forces to create a $2.5 million fund that offers affordable credit to startups. Each institution pledged $250,000 to the Lawrence Venture Fund, which offers loans of up to $100,000 to businesses that do not qualify for conventional loans.
The fund, since kicking off late last year, has closed seven deals totaling $500,000, with a lengthening queue of applicants in the wings, said Derek Mitchell, executive director of the Lawrence Partnership. "With the pipeline of business we have, we think we could go through the $2.5 million in 12 to 18 months," he said.
Merrimack Valley Credit Union in Lawrence is ready to kick in another $250,000, if needed, said Peter Matthews, the $578 million-asset institution's president and chief executive.
"It's a unique group of people getting together to do what they think is best for the city and region," Matthews said. "I thought it was an absolutely great idea – exactly what Lawrence needed – so I was all in from the beginning."
There is no question, Lawrence can use a boost.
Considered one of Massachusetts' poorest cities, with a median household income below $35,000, Lawrence's unemployment rate was 7.1% at the end of July, a level that is significantly higher than the 4% statewide and 4.9% national averages.
Julieann Thurlow, president of the $489 million-asset Reading Cooperative Bank in nearby Reading, Mass., said she sees the beginning of a resurgence taking place in the town.
"There's a lot of positive energy in Lawrence," Thurlow said. "There are more new businesses forming there than anywhere else in Massachusetts. A lot are unbanked, but they are hiring and paying people in the city."
That activity prompted Thurlow to pledge $250,000, even though Reading does not have a branch in Lawrence.
The fund "is creating a new generation of customers … [and] getting them to a point where they have a credit rating," Thurlow said. "It's altruistic but capitalistic as well."
Lawrence has been known as the "City of Immigrants," and Mayor Daniel Rivera said the fund will support Hispanic entrepreneurs who dominate the city's business scene.
"The types of businesses that have – and will – access the Lawrence Venture Fund are the types of immigrant entrepreneurs that built Lawrence and have sustained the employment levels through some of the worst economies of this and the last century," Rivera wrote in an email. "In the long term, that means stronger small businesses and more employment for Lawrencians."
Most of the fund's applicants "are not formalized in a way that would allow them" to quality for even a Small Business Administration loan, Mitchell said.
To address that issue, businesses work with Mill City Community Investments, a community development financial institution, to package and submit applications to a loan committee that includes representatives from participating banks and credit unions. Each institution funds an equal share of approved credits; for a $100,000 deal, each bank or credit union would contribute $10,000. The institutions share equally in any income generated.
In addition to the $2.5 million pledged by the participating banks and credit unions, the city of Lawrence has contributed $100,000 to be used as a loan-loss reserve.
"That's a nice fallback position to have, but we know what we're getting into, all of us," Matthews said. "We know that these loans carry a little bit more risk."
The collaboration in Lawrence stands in contrast to the siegelike atmosphere that characterizes relations between banks and credit unions nationally. Things reached a new low point this month when the Independent Community Bankers of America filed a lawsuit against the National Credit Union Administration over revisions it made to the rules governing credit unions' member business lending. Bank groups have also objected strongly to field-of-membership regulations the NCUA is considering adopting.
Those differences never factored in the talks that led to the creation of the Lawrence Venture Fund, Matthews said.
"It was clear to me that we all had the same view, which was to put the city of Lawrence and this region ahead of any kind of competition we have with each other," Matthews said. "The betterment of the city of Lawrence took precedence."
The other participating banks are Eastern Bank in Boston; Enterprise Bancorp in Lowell, Mass.; Pentucket Bank in Haverhill, Mass.; The Savings Bank in Wakefield, Mass.; and TD Bank in Cherry Hill, N.J. Digital Federal Credit Union in Marlborough, Mass.; Jeanne D' Arc Credit Union in Lowell; and Align Federal Credit Union in Lowell are also contributing to the fund.