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Wednesday, 25 February 2015 20:41

New rules could unlock more commercial lending for Michigan credit unions

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Commercial lending by credit unions could get a boost through an agreement between two federal agencies that would increase access to credit for small businesses.

Under an arrangement between the U.S. Small Business Administration and the National Credit Union Administration, the portion of a small-dollar commercial loan that a credit union makes through an SBA lending program would not count against a regulatory ceiling that caps their business lending at 12.25 percent of total assets.

The agreement and resulting outreach from the arrangement could bring more credit unions into SBA lending programs, said Kenny Leonard, vice president for commercial loan services for Educational Community Credit Union in Kalamazoo and a veteran SBA lender.

“I certainly do think it will open up more opportunities for credit unions,” Leonard said. “It will open up and promote credit unions as a viable option for business borrowers to consider where they may not have in the past.”

Educational Community Credit Union, which had 37,167 members of Dec. 31, doubled total business loans to members in 2014 to $8.0 million and has already been seeking to make greater use of SBA lending programs, Leonard said. The credit union had two SBA loans totaling $1.08 million at the end of 2014, according to a quarterly report filed with the NCUA, and Leonard said there are three or four more loans in the pipeline.

“It’s certainly a focus of ours going forward,” Leonard said. “We have a springboard that situates us in a great position to really start doing more SBA loans.”

In announcing the arrangement last month, NCUA Chair Debbie Matz noted that SBA-backed small business loans rank among the safest lending transactions for credit unions. She called the deal a “tremendous opportunity for credit unions and small business owners.”

“There is a vast untapped capacity for credit unions to make more SBA loans. This initiative will help us unlock that capacity and put it to work,” Matz said.

In Michigan last year, more than 140 financial institutions wrote at least one SBA loan, said SBA Regional Director Gerald Moore. The intent of the SBA-NCUA arrangement is to reach out to credit unions to get those already involved in SBA lending to do more, and to encourage those that are not lending to get involved, Moore said.

“We really want our credit unions to continue to take a look at small businesses and continue to do more in this arena,” Moore said. “This is an opportunity for credit unions to become more engaged in small businesses in Michigan.”

The Michigan office of the SBA is creating metrics to measure the initiative’s effectiveness in the state, Moore said. He hopes that a credit union that did one SBA deal last year, for example, can step up and maybe do three to five loans in the next year.

“If they’ve done a loan or two, it really is working with them to say, ‘OK, what can we do to get you to do more?’” he said.

The effort comes as credit unions, both in Michigan and nationally, registered strong growth in business lending the last several years. Michigan credit unions’ loans to members grew from $192.7 million in 2004, to $587 million in 2009, and $1.4 billion at the end of the third quarter of 2014, the most recent period for which statistics are available.

Despite a current year-to-year growth rate of 17.3 percent for business loans to members, credit union SBA lending remains a small portion of the overall volume compared to banks.

In the October-to-December quarter of the federal government’s 2015 fiscal year, just six credit unions in Michigan combined to account for 23 SBA-backed loans totaling nearly $3.2 million. Through its two main lending programs, the SBA backed nearly 600 loans in the state for $150 million overall in the same period.

Michigan credit unions wrote 20 loans for $2.59 million under the SBA’s 7(a) program in the first quarter of the 2015 fiscal year. That equates to a fraction of the 546 SBA-backed loans for $125.5 million written under the 7(a) program from October to December in the state.

Two credit unions, Lake Michigan Credit Union in Grand Rapids and Advia Credit Union in Kalamazoo, wrote a combined three loans totaling $594,000 during the fourth quarter under the SBA’s 504 program, which overall had 48 loans across the state for a collective $24.4 million from October to December.

Lake Michigan Credit Union, one of the largest business lenders among the state’s credit unions, has participated in the SBA’s 504 program for years and “we look to do more of that business,” said Jim Maskell, senior vice president and group manager of commercial business.

The NCUA-SBA arrangement can help to generate greater awareness of commercial lending by credit unions and the SBA programs, Maskell said.

Expanding into 7(a) lending will allow Lake Michigan Credit Union to handle smaller requests for business loans, Maskell said. The structure and processes to manage more SBA loans is now coming together, and Maskell expects volume to pick up this year.

“I believe in the next 12 months, you’ll see us participating at all levels of SBA lending,” he said. “We just have to get our back room set up.”

Lake Michigan Credit Union finished 2014 with $195.7 million in total business loans to members, a 16.7-percent increase from 2013. Of that amount, the credit union had $6.1 million in outstanding SBA loans at the end of 2014, according to its fourth quarter NCUA report.

Read 4398 times Last modified on Wednesday, 25 February 2015 20:45

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