PORTAGE — Kenneth Leonard and Ryan Reffitt originally set out to provide small banks and credit unions across Michigan with underwriting and other support services for writing business loans.
As they traveled the state pitching Element 22 Commercial Group LLC, several interested credit unions raised another idea. They suggested becoming equity investors and transitioning Element 22 into a CUSO, or credit union service organization.
“As we went around the state and country and started talking to potential clients, and now our clients, almost all of them expressed interest or were inquiring about if we were going to become a CUSO — if we were interested in selling some of the company to them,” said Leonard, CEO at Portage-based Element 22. “At the time, we really weren’t interested in doing that, but as we continued meeting with folks, this kept coming up over and over. We just decided it might be worth looking into.”
That consideration led Element 22 to take in equity investments from 10 credit unions who now own a stake in the company.
“With the support of our investor credit unions, we are able to do more collectively than any of us could do individually,” said Reffitt, president of Element 22. “These partnerships bring a diversity in strategy and perspective directly benefiting all our clients and their members.”
Element 22, formed in July 2018, essentially serves as a contract commercial-lending arm for clients, as MiBiz previously reported. The CUSO presently works with 22 credit unions across the state and a few small banks to handle loan origination, underwriting, closings, preparing documents and term sheets, and commercial service loan portfolios.
By taking on investors, Element 22 received an injection of capital needed to hire additional staff and invest in technology, “and basically advance our business plan ahead of schedule, rather than if we were just funding it out of our pocket,” Leonard said. The investor credit unions as well can offer Element 22 “assistance that we wouldn’t have been able to do on our own,” he said.
“We can grow faster than we were able to before,” Leonard said. “Bottom line, it takes us to the next level. Having 10 credit unions invest in your company automatically gives you credibility in the marketplace.”
The move also gave Element 22 immediate clients in the 10 credit unions that invested in the company, plus word-of-mouth advertising by executives and the ability to leverage their accounting and marketing staffs.
The 10 credit unions that invested a collective $500,000 in Element 22 had nearly 260,000 members and $3.14 billion in total assets combined at midyear.
The credit unions vary in size and geographic location around the state. The credit unions, their asset size and membership as of June 30 are:
• Allegan Community Federal Credit Union: 8,171 members and $45.5 million in assets
• Community First Federal Credit Union, Lakeview: 9,877 members and $65.7 million in assets
• First United Credit Union, Grandville: 4,501 members and $39.2 million in assets
• Frankenmuth Credit Union: 48,399 members and $699.4 million in assets
• Honor Credit Union, Berrien Springs: 83,824 members and $978.1 million in assets
• Kellogg Community Credit Union, Battle Creek: 39,654 members and $590.3 million in assets
• Marshall Community Credit Union: 13,111 members and $214.5 million in assets
• Preferred Credit Union, Grand Rapids: 24,171 members and $179.5 million in assets
• TBA Credit Union, Traverse City: 17,997 members and $226.1 million in assets
• Wolverine State Credit Union, Alpena: 9,749 members and $103.7 million in assets
Element 22 could consider taking on additional equity investors in the future, although “that’s not something we’re interested in at this time,” Leonard said.
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