COLUMBUS, Ohio (9/16/15)--While the 12.25%-of-assets member business lending (MBL) cap has curtailed or even stopped some credit unions from lending commercially, many are ferreting out innovative ways to continue to serve local businesses.
Whether the National Credit Union Administration and Congress loosen restrictions on MBLs--as CUNA continues to advocate for--credit unions can still find ways to support small businesses, from providing products that improve revenue flow to offering microloans.
MidUSA CU, Middletown, Ohio, for example, recently announced that it’s offering a product that accelerates revenue streams for businesses that sell to other businesses or government customers.
The product, called NOWaccount, works by advancing--not loaning or factoring--the money owed to a business’ accounts receivable department for a flat fee.
“When businesses put an invoice on NOWaccount, they get paid immediately--their actual revenue--at a flat 2.5% merchant fee,” Lara Hodgson, president/CEO of NOW Corp., told News Now. “So if you offer a net-30 (day) invoice, you’re going to get paid immediately. And, when and if the customer pays is no longer your issue. If the customer doesn’t pay, you still get 97.5%, and you know exactly when you’re going to get it.”
Through the program businesses can access up to $1 million of cash at a time--or up to $8 million annually--which creates a flow of capital that allows the business to grow at the pace it wants.
While MidUSA only recently began offering NOWaccount, credit unions across the state have diversified their offerings with this product as well, and the partnership has produced positive results.
In many cases, Hodgson said, credit unions have used NOWaccount as a starting point for relationships with businesses that later have led to more business for the credit union.
And, because NOWaccount improves revenue flow, the businesses become more-attractive and less-risky borrowers.
“To be able to have a tool that really looked at a different angle was something we were really interested in,” Christy Eby, MidUSA business development director, told News Now. “This is something that our existing members can use as a tool to help them.” Eby also noted the feedback on the product has been positive.
The Ohio Credit Union League has been instrumental in connecting credit unions across the state with NOWaccount. Adam Kearns, league business development director, said that seven credit unions in the state now offer the product.
“We hope to see that number continue to grow,” Kearns said.
CUNA, meanwhile, also has been involved in helping credit unions strengthen their member business lending, and without taking a huge bite out of the meager 12.25% cap.
Since December, CUNA has worked with the Small Business Administration (SBA) to connect credit unions with the SBA’s guaranteed loan programs.
Through programs such as SBA’s 7(a) loan program, credit unions can offer loans to businesses with up to 90% of the loan guaranteed by the SBA. The good news for credit unions is that the SBA-guaranteed percentage of the loans doesn’t count toward their business lending caps.
To help expand the use of SBA loans, CUNA and the CUNA Lending Council have developed an online form for credit unions to fill out if they are interested in starting the program.
On a more traditional business lending level, Mid-Atlantic FCU, Germantown, Md., has taken steps to ramp up its offerings as well.
It should be noted, Mid-Atlantic recently earned its low-income credit union designation from the NCUA, another way for credit unions to find relief from the cap, as the cap doesn’t apply to low-income designated credit unions.
But the credit union also announced last month that it has committed $1 million to provide microloans to small businesses--especially those owned and operated locally by women, minorities and military veterans--to purchase equipment and machinery, hire employees, or to use as working capital, among other needs. The loans range from $10,000 to $50,000.
Deric Mims, Mid-Atlantic senior vice president/chief lending officer, told News Now that the credit union also has committed to streamlining the application process to make it easier to secure financing.
“We’ve created a program where we are not asking businesses to jump through a million hoops,” Mims said.
The credit union’s new leadership, particularly the credit union’s President/CEO Andrew Russell, has recently placed an added emphasis on commercial lending, Mims said.
“We have the capabilities to serve businesses in the community, but historically it wasn’t a big focus, and we wanted to change that,” Mims said. “Our desire is to support these small businesses, who still have a tough time with access to capital (and) that could really use a boost to get to that next level.”