Relationship Building May Contribute Toward Lower MBL Delinquencies
By Gina Ragusa Credit Unions Online
How well do you know your banker and what kind of effort does your banker take to get to know you?
A recent report of declining Member Business Lending (MBL) delinquencies has some credit union executives pointing to the way credit union loan officers take the time to get to know business clients and study their proposal to ensure a deal is solid, rather than rubber stamping applications.
“One of the things I’ve been emphasizing is the relationship aspect,” explained James Salmon, VP/Business Services for Navy Federal Credit Union ($50 billion, Vienna VA). “We want our members to stay with Navy Federal and become their primary financial institution. One of the main focuses of our business loan program is that we really first start by trying to establish the member and deposit relationship. With those two elements in place and by properly providing vital services that business owners are looking for, such as electronic banking, free web bill pay, remote deposit for small business owner; we then get involved with the credit.”
Although both bank and credit union reported loan delinquency rates have dropped, credit union delinquencies appear to be even lower. According to Catalyst Strategic Solutions, the 90-day delinquency for bank and thrift loans dropped 13 basis points to 3.44%, whereas credit union loans within the 60 to 180 day delinquency range were 2.33% versus 2.63% during first quarter of 2011.
In a recent report, Mike Bridges VP/Marketing and Communications at the League of Southeastern Credit Unions wrote about the quality of credit union loans in his region. “One thing is certain, the quality of the loans being made in each state is excellent,” he says. “For the third-straight year, delinquent loans to loans has fallen in each state and net charge offs to loans has also decreased. Alabama credit unions delinquencies and charge offs are each well below the national credit union average. In Florida, the delinquency rate has fallen 50 basis points since 2010 and net charge offs have fallen 78 basis points.”
In terms of commercial loans, delinquencies have leveled out at Navy Federal Salmon said. “Things are not the way they were two and half to three years ago. Small business owners know we are here to help them, especially in an environment where many business members are just not sure what their customers are going to be doing and if they are willing to continue with contracts.”
As a result, people are being more conservative and perhaps being more fiscally responsible today versus the heyday some markets saw a few years ago. “Many business owners are not taking the same kind of risks they used to and are planning ahead and growing slower and more cautiously.”
Strong Relationships and Expert Knowledge Provide Member Success
Credit unions are becoming adept experts in the area of commercial lending, entering the Small Business Administration (SBA) arena and becoming an obvious choice for many small businesses. For example, Harborstone Credit Union ($778 million, Tacoma, WA) recently granted a business loan to one of its members who had experienced success opening a Subway franchise. The member said that cutting through the SBA red tape was difficult but the credit union made it a lot easier.
“It was difficult at first, meeting the Small Business Administration (SBA) guidelines,” said Maninder Bahia. “The credit union helped find our strengths to make this happen.”
“You have to really know the SBA rules,” said Harborstone SVP/John Renforth. “It takes a lending staff who knows the SBA in’s and out’s, and understands the documentation they require.”
Being an SBA expert provides advantages to both the member and the credit union. “It allows us to look at local small businesses as partners,” Renforth continued. “We seek opportunities like this to help businesses become long term players. And they want a local lending partner who can make decisions locally.”
“The key is maintaining the relationship and to have adequate controls in place,” Salmon added. “We always conduct follow up with our loans and make sure our officers visit members quarterly or semi annually.”
Member Business Lending Cap Provides Hurdles for Many Companies in Need
Although a growing number of small business owners are finding love at a credit union, many may not realize that the MBL cap is putting a strain on some institutions.
When a bank rejected small business owner and personal trainer, Nick Irons’ application for a small business loan, he turned to Mid-Atlantic Federal Credit Union ($260 million, Germantown, MD)--but only was approved in the nick of time.
President Richard A. Wieczorek Jr. told The Washington Post that the credit union had to reduce its business loan profile because it was nearing its commercial loan cap. Credit unions can only make commercial loans up to 12.25% of its assets. Senate Bill S. 2231 proposes that the limit be increased to 27.5%, which could accommodate more business owners like Nick Irons.
As the economy struggles to recover, experts contend that reviving more small and locally owned businesses would greatly contribute to recovery. An estimated 120,000 jobs would be created within the first year if more small businesses could obtain a loan from a credit union.
Wieczorek says that the demand is there--credit unions are just having a tough time granting loans to everyone who deserves one because of the cap. “Demand for loans really started to ramp up as the recession subsided. But the cap prevents us from doing larger deals because we must stay within the limits. It’s an impediment to putting our deposits to work.”
NCUA Chairwoman Debbie Matz told The Post that some credit unions don’t advertise their commercial loan program because of the cap. “There are even credit unions that maybe make a few loans, but they don’t advertise it because they don’t want to turn away business,” she said. “We’re estimating that increasing the lending cap would produce at least $5 billion in new credit for small businesses.”
Although the S. 2231 has made it to the Senate, some business owners can’t wait for lawmakers to make a decision. Credit unions like Navy Federal are trying to help in the interim to ensure other credit union members can still receive a business loan.
At $50 billion in assets, Navy Federal isn’t overly concerned about reaching its cap and empathizes with credit unions that are worried they may need to refuse business. “We are reaching out to other credit unions to help them with participations,” Salmon said. “We are interested in working with other smaller credit unions who have issues with lending caps. If it’s a sound deal or in our key area, we are more than interested in participating with a smaller institution.”
Trying to turn your dream of business ownership into a reality but keep getting rebuffed by the banks? Find a credit union and inquire about member business lending today.