Twenty Years of Experience Helps Chetco FCU's Business Lending Program Stay Innovative, Thwart Complacency
HARBOR, Ore. -- With more than 20 years invested in its business lending program, Chetco Federal Credit Union has grown to become the "800 pound gorilla" in the highly competitive marketplace here.
The $319 million credit union offers term loans, lines of credit and commercial real estate amassing $160 million in its business loan portfolio; is also a Small Business Administration lender; and connects with other credit unions for loan participations. It recently launched Professional Lending Solutions, its own CUSO for other credit unions to take ownership in. In the business loan program's 20-year history, it has experienced only one loss--a loan for $48,000, according to Stan Baron, president/CEO.
"We're focused on assisting our members in attaining their dreams. We don't focus on the bottom line," Baron said. "We put a lot of emphasis on individual character and history. Banks don't care about that. They want to know how much they're going to make on a loan."
Unlike many credit unions, Chetco's long tenure in business lending allowed the CU to be "grandfathered" against NCUA's regulations, Baron said. Free of many regulatory limits, Chetco can work with everyone from contractors on multi-million dollar properties to "a grandmother running a business out of her garage." The CU actually works with a number of contractors preferring them over "major spec projects" Baron said.
"Before a developer can deal with us, we have to approve them to make sure they're not fly by night and that they have the appropriate corporate structure," Baron said.
Harbor is the midst of a "macro economy." Baron said the area, roughly seven miles north of the California state line, gets the residual effects from San Francisco. Meaning, Harbor is about six months behind the Bay Area city. Some people sell their $2 million homes in San Francisco and move further north into Oregon, he added. Those transients--some looking to start their own businesses--have turned to Chetco including a moving company the CU helped to finance. Local restaurants and bookstores have also gotten their start thanks to Chetco's business loans. Being the financer of choice for many businesses has led to Chetco beating out bigger banks including Washington Mutual, Baron said.
"In the last seven years, we have become the 800 pound gorilla. We compete against five banks and we hold 52% of the deposits in town," he pointed out. "The next closest competitor is Washington Mutual and they have 12%. On the loan side, we blow them out of the water. They just don't understand our philosophy."
Chetco's business loans range between $25,000 to $5 million with the "sweet spot" in the $100,000 to $500,000 bracket, Baron said.
The CU wanted to share its success formula with others so in 2005, it launched Professional Lending Solutions, a CUSO currently serving eight credit unions in Washington, Idaho, California, New Jersey and New York. For nearly three years, Baron said Chetco studied industry veterans such as Business Partners, LLC the multi-owned CUSO formed by $608 million Telesis Community Credit Union as well as Northwest Corporate FCU's loan program.
"We spoke to people who did business with them. From compliments to concerns, we created a CUSO and made sure [they wouldn't] have any concerns with us," Baron said. Some concerns were "significant" annual fees to belong to a CUSO and having to sign a contract for services a credit union might not want or need, he added. Baron said credit unions can sign up for only the services they need be it commercial loan documentation or underwriting, for example. Professional Lending Solutions will have its first conference in May with the goal of having at least 20 credit unions signed on by the end of 2007.
"Credit unions desperately want to get into business lending but commercial loan officers are expensive," Baron said. "A jointly-owned CUSO is a good idea."
With all the success Chetco has achieved with its business lending program, Baron said it's still hard to woo potential employees to the area. An isolated town known for its long rainy season, Harbor is approximately 400 miles north of San Francisco and 300 miles from Portland. Baron said since it's primarily a retirement area, job candidates with young families are hard to pursue.
"After the rainy season, we have great weather but because it's so remote and small, it's hard to get people here," said Baron, a New Jersey native who at first experienced "culture shock," when he moved here in 2000, but says he's content Harbor helped "slow [his] pace down by 40%."
Meanwhile, Chetco will continue to seek out innovation.
"One thing we'll never become is complacent," Baron said. "There's such a need out there. We try to make boards understand [because] if they fear it, they won't pursue it. We never lose sight of the reason why credit unions were created--to help people. That's the basis for why we make our loans."