MADISON, Wis. - Funding small business loans at credit unions has been on the books for decades by the U.S. Small Business Administration. But the agency beefed up its efforts on June 9 when it kicked off a campaign to educate credit unions in inner cities and rural areas about available money. The National Federation of Community Development Credit Unions forged an alliance with the SBA at their annual meeting in June to help provide more funding for low-income businesses in inner cities and rural communities. The New York-based federation has a national network of 200 urban and rural credit unions. The SBA 7(a) loan guaranty program guarantees loans to small businesses that are unable to secure financing on reasonable terms through traditional lending channels such as banks. The program operates through private-sector lenders that provide loans, which are, in turn, guaranteed by the SBA. Most of the loans range between $25,000 and $75,000. "Community development credit unions know how to make the kinds of loans that help small businesses, they know how to work with borrowers to improve their chances of success, and they know the economic development needs of their communities," said Fred Hochberg, SBA deputy administrator. "All they need is access to the backing that comes from SBA loan guaranties." One credit union that may stand to have access to small business loans is the First American Credit Union in Window Rock, Ariz., an area that serves mostly the Navajo nation. SBA officials plan to meet with Robert Shipe, president of First American along with the Navajo Tribal Administration. "We got a call from the SBA saying this is one of the areas of the country they're looking to serve," Shipe said. "It's still in the introductory phase, but it would certainly be a terrific opportunity for us if we could have access to funding for small businesses here." Currently, seven community development credit unions are approved to make SBA-backed loans under the 7(a) loan program, including the Self-Help Credit Union in Durham, N.C. Since 1988, Self-Help has provided more than 100 SBA loans up to $600,000 to members, comprising roughly 30 percent of its loan funding which includes home mortgages. Regarding the time and staff needed to provide funding, Bob Schall, Self Help's vice president of commercial lending, said it really depends on the business savvy of the member applying. "There are some members that are overwhelmed by the amount of paper work involved, but we have the loan officers who specialize in commercial lending and can walk novices through the process," Schall said. "But I can certainly see how this would be a huge undertaking for a credit union that doesn't have the staff to see it through." While the push to fund business loans to credit unions is a welcomed gesture, some smaller credit unions say the basics on things like money management need to be taught before a member applies. James Parham, manager of the Denver Community Development Credit Union said his tiny staff of three just isn't equipped to take on the task of commercial lending and all that it entails. "We would definitely need a support system in place to walk members through the process but even more important, they have to be educated on concerns like what would happen if they default or even writing a business plan," Parham explained. Of the 2,600 members at the Denver CU, Parham said those who do have businesses are only a handful and mostly home-based outfits that depend on funding from micro loans - loans that typically range between $100 and $25,000. "Don't get me wrong, Parham clarified, "it would be advantageous for this community to have SBA funding but we need a foundation of education." "We agree this loan program is not for every credit union," said Clifford Rosenthal, NFDCU's executive director, "those that have worked with us have people on hand who specialize in commercial and micro lending - a credit union would have to consider becoming a SBA lender as a very serious operation." Still, it is the handholding that is costly for most banks, said one SBA official. And, "the truth is not too many banks do small loans because they're not profitable," said Bruce Hodgman, assistant district director for economic development at the SBA district office in Phoenix. "Credit unions always had the authority to offer the loans." Asked if banks should foresee lending by credit unions as an encroachment on their territory, Hodgman said "they're a lot of good banks out there but not all of them are extending themselves into areas that need them - is there a possibility they could lose some business, yes, but we're talking about markets where banks aren't already serving. Remember, our goal is not to serve banks or credit unions but small business." Rosenthal said NFDCU has a full-time expert in small and micro business lending on staff (Walter Merkle) and the SBA will deploy its field officers to assist new SBA-approved credit unions with their first few loans. NFDCU and SBA hope to enlist at most, 50 community development credit unions as SBA lenders to operate in economically distressed communities throughout the country. -
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