ALBUQUERQUE, N.M. (10/15/14)--Several years ago, Jay Rembe, co-owner and founder of an urban design and development firm in New Mexico, approached a bank for a business loan. He was turned down.
Rembe then called on local Sandia Laboratory FCU, Albuquerque, N.M., with $2 billion in assets, and the credit union helped secure him the financing he needed (Albuquerque Business First Oct. 10).
In New Mexico of late, this scenario isn't all too uncommon.
Business lending at the state's credit unions has surged recently, punctuated by a 21% annual gain in business lending in March, according to the Credit Union Association of New Mexico.
Meanwhile, as credit unions see upswings in business loan growth--at Sandia Laboratory FCU, for example, business loans are estimated to climb by 53%--business loans at small banks have stiffened.
Credit union leaders in the state say part of the reason for the shift is a result of more intense federal oversight of banks, which has made them more unwilling to make loans.
Though, credit union leaders also say that their ability to turn loans around in a timely manner, not to mention their lower rates, are contributing to the trend as well.
"We are quicker, and our terms may be a little bit more flexible," Rick Baca, senior vice president of business services at New Mexico Educators FCU, Albuquerque, with $1.4 billion in assets, told Albuquerque Business First. "If a borrower is in a hurry, we can give them a letter of interest within two or three days, and within two or three weeks we can have a formal commitment."
Of course, bankers roll out the party line that credit unions' tax status somehow allows the not-for-profit, member-owned institutions to hold a competitive advantage.
But Paul Stull, president/CEO of the Credit Union Association of New Mexico, told Business First that banks merely are "crying foul" because of the competition.
"If credit unions have such a pricing advantage, then why don't we see more banks converting to credit unions charters?" Stull said. "I would ask anyone to look closely at the bankers' costs. They spend way too much on director pay, stock options, bonuses and dividends. If they reduced some of those costs, they would be able to price more competitively. They seem to post record profits every year, as I recall, but complain they are at a disadvantage."
Banks also charge off "way more" losses from failed business loans than credit unions do, Stull said.
"If you go back to 1997 and average the losses through March of this year, credit unions charged off 0.29%, while banks charged off losses at a rate of 0.81%," Stull said. "How can credit unions be hurting banks when banks are not making loans?"
Rembe and his development firm, meanwhile, continue to go with the credit union, which has since helped the company finance several projects in the Albuquerque area.
"They have seen you do (development projects) before and they have confidence in your ability," Rembe said of Sandia Laboratory FCU. "The large banks have a cookie-cutter approach to things, and if you don't fit into that mold" you don't get a loan.