LANSING, Mich. - It might be new territory for NuUnion Credit Union, but the long-term impact for Michigan's economy, which has been in the doldrums lately, could see a revival thanks to a network of financial institutions and the re-launch of a 20-year old program.
The $771 million credit union is the first and only credit union in the state to join the Michigan Economic Development Corporation's Capital Access Program. The program was originally created in 1986 and reinstated in 2002 to provide financial institutions with a flexible tool to make business loans that are somewhat riskier than conventional bank loans, allowing the financial institution to expand its market and better serve its customer base.
"We're stepping into new territory for credit unions," said Stephan Winninger, NuUnion president/CEO. "Small businesses are the roots of our communities and their owners are most like our membership. So this is a great match for NuUnion."
The way the program works is the state matches a percentage of the loan with a percentage combination from the lender and borrower. Similar to a loan loss reserve fund, the lender, the borrower, and MEDC pay a small premium into a reserve that makes it possible for the borrower to receive fixed asset and working capital financing. The total combined premium ranges between 6%-14% of the loan, according to Mike Shore, MEDC chief communications officer. Lenders typically pay 1.50% to 3.50%. The borrower and lender pay a quarter of the percentage and whatever the combined percentage is, the state will pay half of that total.
"We think this program is going to jump-start a lot of small business development and expansion in Michigan," Shore said. "We offer a level of protection for the lenders. We create the reserve fund in each lending institution over a portfolio of loans that are presumably riskier than they would ordinarily do."
While active, the CAP provided funding to more than 9,700 businesses, generating approximately $550 million in bank lending. Since its re-launch in May, NuUnion, which joined in June, joined 37 banks enrolled in the program. CAP currently has 51 loans totaling $2.9 million and the state has matched $110,000, Shore said. Due to Michigan's "budgetary restraints," the program had to temporarily shut down years ago, but its revitalization is poised to put business development back on the map.
"We're back on track," Shore said. "There were a number of lenders in the past that made this program a main part of their outreach. We're going to see that level of excitement soon."
To qualify, applicants must generally be start-ups or established businesses that don't have enough collateral to apply for a traditional loan. MEDC says it plays no role in the lender's decision to make the loan or in setting its terms. CAP loans can be long or short term, term loans or lines of credit. The lender can recast, extend or refinance the loan to address the needs of the business owner. Because of the potential risk, the program is more expensive than traditional bank lending because of higher fees and, in many cases, interest rates, MEDC said. However, the program can be used to finance most types of businesses, with the exceptions of construction, renovation, purchase of residential or rental housing, or rental property, and there are no restrictions on loan size or terms. NuUnion will participate with its partner, Michigan Business Connection, a CUSO formed in 2004 as a collaborative effort between Michigan credit unions to share the cost and risks of business lending. Winninger said together, the pair can now make loans to companies "with good management and good direction, but for some reason, such as lack of adequate collateral, lack of sufficient track records, or lack of sufficient net worth, don't qualify for a conventional loan."
One of the original founders of MBC, NuUnion has seen its business services program grow over the past two years. It has nearly 1,200 business accounts totaling approximately $5.5 million and $9.5 million in business loans.
"This is the market we're best suited to serve," Winninger said on serving small businesses. "It also supports our commitment to serve the underserved in our communities. This is consistent with us being unique and forward-thinking." -firstname.lastname@example.org