Increasing the credit union business lending cap from 12.25% to 27.5% seems to be a lesson in basic logic. Currently many credit unions can only lend up to 12.25% of its asset size to businesses--raising the cap could nurture a starving economy. With the economy still on life support, homegrown business is one of the primary ways for financial resuscitation. However, what happens when the local business owner cannot turn to his credit union and has to go with a bank?
How a Credit Union Can Make the Difference
According to Chief Lending Officer at Columbia Credit Union ($785 million, Vancouver, WA) business owners may be facing an uphill (and sometimes losing) battle with the banks. Fulk recalls a customer who was able to expand business, hire more employees and deliver much-needed assistance to tsunami victims in Japan--thanks to his credit union business loan program. "This was a well-established company in the area that employed a few hundred people and found an opportunity to expand into a larger facility," Fulk says. He explains that the company was a philanthropic organization and had its eye on delivering services to tsunami-distraught victims in Japan. "The company needed to release, then buy a facility in order to expand," he recalls. Fulk adds that the company's expansion was also based on a tight timeline so securing financing immediately was essential. "The company ran into trouble when they had problems qualifying for the loan. Qualifying had really nothing to do with their financial situation, but more of the bank's financial position." As the company waded through endless red tape and grew concerned about the fast approaching deadline, it turned to the second bank. "Again, this bank's timeline became elongated, raising additional concerns for this company." At this point the company dove back into its financial institution research and visited Columbia Credit Union. "One reason they may have been interested in our credit union is our dedication to community service and giving back." Fulk says that last month credit union employees donated 800 hours of community services--something that is commonplace for Columbia. "Once they began working with us, we could react quickly, which allowed the company to make its deadline." As a result the company increased production levels by 30%, expanded its employment base and provided vital services to Japan. "The big banks didn't react quickly enough and the small ones simply couldn't react," he says. "This caused a significant delay which jeopardized the company's position to capture business and employ people in the community." In fact Fulk shudders to think what would have happened in this scenario if Columbia's business lending cap hadn't been extended past the 12.25%. "We have actually have a business lending cap exemption in place so we were able to provide loan services to this company," he says. "However, if we were held to the 12.25% cap like so many other credit unions we would have had to turn the company away as at the time we were up against the normal cap."
Why Increasing the Cap is Vital
Although some credit unions have managed to earn a cap increase, others still struggle under the cap and watch their commercial members close their doors due to a lack of bank loan response. Fulk admits that credit union business lending would not be pretty at Columbia if they didn't have the exemption. "If I didn't have that exemption in place I'd be hurting," he says. "Over the past 10 to 12 months we've seen a bigger appetite for our product and services, primarily due to the fact that local banks have tightened up." He adds, "If restricted by the cap, I can say there's $24 million in loans I couldn't do. This means that I wouldn't be able to help business owners in the community. The majority of these area businesses are manufactures and businesses that employ people and I'm not sure where these people would go. However, I can make a difference in our community today because I am still in business." Larry Shintani, VP/Business Services at Numerica Credit Union ($1 billion, Spokane Valley, WA) agrees that the cap increase is needed to stimulate the economy. "With the higher lending cap, many other credit unions will be in a position to not only grow their business lending services, but to also simply keep lending." Shintani says that like Columbia, Numerica's business lending cap has been extended. "On June 28, 2011, our business lending CAP was increased to 20% (or 12.75 times our net worth), allowing Numerica to develop our business services with room to grow," he says. "For Numerica, our recent CAP increase was necessary to continue offering business services at all - products that allowed us to help stimulate our local economy." "We're currently offering a wide range of business services, and with our CAP at 20%, we're given room to grow even without the proposed increase to 27.5%," Shintani adds.
What Your Credit Union Can Do Now
While the overall cap increase is under debate, Shintani believes that not all credit unions may qualify. "In my personal opinion, I don't believe they will automatically increase the cap to 27.5% for every credit union," he says. "The credit unions who have been reviewed by DFI (Department of Financial Institutions) and have demonstrated business services requirements should have already received the cap increase. Those who want or need the cap increase should develop the expertise in commercial lending required by DFI. We need to put money into the system and help stimulate the economy, but we have to put 'good' money into the system." Shintani demonstrates how Numerica earned its cap increase. "In our situation, in order earn our cap increase, we had to prove to the Department of Financial Institutions that we showed a demonstrated need for business loans by our members; that our MBL program had no significant underwriting, documentation or loan administration problems; that Numerica has satisfactorily demonstrated the expertise to originate and administer our business lending program in accordance with our MBL policy; and that Numerica was in compliance to Chapter 209-460-WAC."