Credit union bolsters business loan program

Since Feb. 1, Brian Roy has led Postal Federal Community Credit Union’s charge to carve a niche in the business lending arena.

Postal Federal President Steve Pierson said credit unions have long been allowed to make business loans of less than $50,000, but in December, Postal Federal’s board of directors gave the go-ahead to create a business lending services department and reach for a bigger piece of the commercial loan pie.

“We were looking at ways we could help more members and also have more loans on our books,” Pierson said. “When you bring deposits in, if you don’t loan them back out, you invest them. Interest rates are very low right now, so it makes it an advantage … to loan out as much as we can to increase earnings, which we give back to the members.”

The official roll-out date of Postal Federal’s expanded business lending services is April 1, Pierson said.

Federal regulations mandate that credit unions can only have 12.25 percent of their assets tied up in business loans, and with Postal Federal’s assets at about $130 million, loans will be capped at $15.9 million.

Roy, who has about six years of banking experience, most recently at BancorpSouth, is instrumental in the expansion, as Pierson said regulations also require credit unions to have a staff member with at least two years of business lending underwriting experience in order to make loans of more than $50,000.

“For a smaller credit union, 12.25 percent of their assets when they’re maxed out might not be enough dollars to offset the costs of providing this type of loan” Pierson said.
Roy, vice president of business lending services, who helped craft the credit union’s business lending policies, didn’t waste much time getting out of the gate.

“We have our first loan closing scheduled April 8. It’s about $150,000,” Roy said, noting that the unnamed borrower is an acquaintance whose business he’s been chasing for a while.

That amount is in line with the business borrower niche Postal Federal expects to fill, Pierson said.

“We’re not going to be making $5 million business loans,” Pierson said. “We’d be maxed out too quick, and then, you have concentration risk, with our size, to have too much in one loan.”

Roy added that the credit union’s business loans will primarily be for commercial real estate for established companies.

“Because it’s a new department, we will be fairly strict with our guidelines,” Roy said. “One bad loan in a small portfolio could really turn the whole department negative in a hurry. But we’re looking at every offer that comes in the door with an open mind.”

According to the Credit Union National Association, the current cap is imposed by Congress under the Credit Union Membership Access Act of 1998. CUNA data shows that credit unions hold 5.3 percent – or $39 billion – of small-business loans at U.S. depository institutions. The association is asking Congress to increase the cap on individual credit unions to 27.5 percent, but Roy said that request hasn’t yet been approved.

He said the current cap means that he’ll service fewer customers, rather than a large portfolio, so he’ll be able to maintain the credit union’s customer-oriented focus.

He said the credit union now offers a five-year fixed rate business loan, though he declined to disclose specific interest rates.

“I hate to quote a rate, because not everybody’s going to qualify for it,” said Roy, who is the sole employee of the credit union’s business lending services department.

At least initially, the credit union won’t participate in U.S. Small Business Administration lending programs, Roy said, though those may be explored in the future.

He anticipates that Postal Federal will max out its 12.25 percent cap within three years.

“Really, for the first year, just to be conservative, we threw a number out there that we wouldn’t do more than $8 million. By the end of the year, if we do between $2 million and $4 million, we’ll be happy,” he said.

Expansion of business lending services isn’t the only recent change for Postal Federal. In summer 2010, the credit union completed a $2.1 million expansion of its 1770 W. Sunset St. facility, and in early March, it announced that a name change is on the way.  

A new name should be announced this summer, said Jenny Reynolds, vice president of marketing services.

She said Postal Federal decided to announce the name change early so members would be aware of it and could ask questions or make suggestions.

Following correspondence with the credit union’s nearly 18,000 members, more than 150 suggestions have been submitted, and a naming committee is meeting regularly to brainstorm.

“We’ve already got a brand, and a very defined culture of our members in the community, and we want to make sure our name reflects that appropriately,” Reynolds said.[[In-content Ad]]