When the city of Watsonville, Calif., wanted help earlier this year rejuvenating its business district, the only local financial institution that stepped up was Santa Cruz Community Credit Union.

"The credit union was the only one close to being responsive -- and it was very responsive," said City Manager Steve Solomon.

The idea was right up the credit union's alley.

"Watsonville represents the largest concentration of low-income people and people of color and minorities in our area, and serving those groups of people is an integral part of our mission," said Jeff Wells, vice president of lending at Santa Cruz Community.

Few credit unions participate in commercial lending, but $19 million-asset Santa Cruz Community has been funding businesses for community-development purposes since its founding in 1977.

About a quarter of the credit union's $12.7 million loan portfolio is community-development loans, including $375,000 of funding for a low-income housing project across the street from its downtown headquarters.

Trying to revive activity in its business district, which hasn't fully recovered from the recession and the 1989 earthquake, Watsonville looked for a financial institution that wanted to participate in a guarantee program that would insure up to $250,000 in loans.

"The idea was to see if we could provide simpler, quicker access to small amounts of capital for small businesses in the city," Mr. Solomon said. "A lot of financial institutions aren't wi make small loans of $50,000 or less."

Santa Cruz Community was the only institution that accepted the city's terms, Mr. Solomon said. The credit union has made one loan, to a coffee shop, since the program started in September.

The loan guarantee program can help Santa Cruz Community make loans that the National Credit Union Administration would otherwise consider too risky, Mr. Wells said.

When NCUA Chairman Norman E. D'Amours visited the credit union in November, its directors and staff urged him to relax some of the agency's business-lending regulations; he appeared receptive to the idea.

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