LAKE BUENA VISTA, Fla. - Four months after the state Credit Union Review Board voted to accept the recommendation of an administrative judge in favor of credit unions and the business lending practices of a small business lending corporation formed by three of the state's CUs, Wisconsin bankers are still upset about the success of the Business Lending Group. The Wisconsin Department of Financial Institutions has already supported the right of the credit unions, all state chartered, to make business loans and the right of CUSOs to assist credit unions in making such loans (CU Times, Dec. 22, 1999.) Now the bankers are suing the state credit union regulator in circuit court and continuing to challenge the legal rights of CUSOs. Speaking at a breakout session during the CUES Marketing, Operations and Technology Conference, Greg Hilbert, president and CEO of Fox Communities Credit Union, said he "didn't expect the ferocity of how the banks don't like us. There's a lot of anxiety in the banking community." Fox Communities CU, Appleton, is one of the three CUs that formed BLG. The other two are Banta Community CU (Menasha) and CitizensFirst CU (Oshkosh). Actually, Hilbert added, the issue grabbed front page coverage in a local newspaper, generating publicity that BLG could never have afforded and perhaps helping the CUSO meet financial objectives well in advance of its original business plan. "We're confident we'll win pretty easily in court," Hilbert said. Originally, Hilbert explained, a business lending specialist at a local bank approached some credit unions about offering business loans. The bank he worked for had been absorbed in a merger, and the man was interested in applying his experience someplace else. Seven credit unions got together to discuss the idea and hired a marketing group to conduct focus group studies among local business owners. The findings indicated businesses were frustrated with existing lenders because: * Decisions were being made on a regional rather than local basis. * Accounts were serviced outside the area. * Loan officers frequently changed jobs. * Decision-makers no longer understood the borrower's business. * Lending policies changed due to sales and acquisitions. The focus groups indicated they wanted: * Personal relationships. * Local decision-making. * Loan officers who understand the applicant's business. * Guidance and support. * Hassle-free applications. * Competitive rates. * Flexible terms. The project was on hold for a while after four credit unions dropped out, but the remaining three carried through and formed BLG. "Our credit union had been making business loans, but on a smaller scale," Hilbert said. "When you're a community-based credit union, there's an expectation you will provide services to all segments of the community." By banding together, he continued, the three credit unions "could afford more expertise and hire someone with the needed experience. We also wanted to get the best software we could. We felt it was important to have a neutral, off-site location not at one of the partnering credit unions." The three credit unions own BLG equally, each having a one-third stake. Each credit union contributed about $25,000 start-up money to buy capital equipment. BLG is a registered mortgage broker and BLG officers are registered loan originators. As a CUSO, BLG does not fund the loans, which are instead funded directly by the credit unions. The referring credit union originates the loan, and the others participate. So far, Hilbert said, the credit unions have been fairly equal in terms of loan amounts they've been bringing to BLG. The original business plan assumed there would be three employees the first year, with a credit analyst added to the staff the second year. Average yield would be 8%, the average loan $150,000, and BLG would approve $10 million in business loans the first year. Since BLG opened its doors in June, 1999, the CUSO has already granted $20,735,000 in business loans. The average loan is about $250,000, or approaching double what the founders projected. "We expect to reach the break-even point in the next three months," Hilbert said. "The spread has been narrower than what we looked for, but obviously the volume has been higher than we anticipated. We found there was a lot of pent-up demand." In a number of cases, he noted, BLG has been forced to trim interest rates to meet competitor's offers. Finding other credit unions to participate in loans has been important. For example, BLG wrote a $7 million real estate loan. The CUSO needed to participate $3 million out to other credit unions. "It's an extremely competitive business," Hilbert said. "All three credit unions are not on the same data processing system. It takes a strong commitment by all three owner credit unions to work together." -
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