Thwarted by Law, New CUSO Revs Up N.C. CU's Commercial Lending
RALEIGH, N.C. -- Having launched its commercial lending division back in August 2006, Local Government Federal Credit Union had every intention of being able to offer loans to the 100 counties and more than 540 cities and towns in North Carolina.
A general state statute, however, prohibited cities and counties from making deposits into credit unions, essentially bringing the innovative lending effort to a halt. The $792 million LGFCU pressed on, shifting its focus toward nonprofit organizations and volunteer fire and rescue departments. Over the past two years, the credit union amassed a little over $3 million in loans--but still kept its eye on expansion.
Fast forward to April 2008 with the rollout of LGFCU Financial Partners, a unique credit union service organization that will offer commercial loans to North Carolina's cities and counties. Deborah Isenhour, the CUSO's president, said serving governments is at the core of the credit union's foundation.
"The organizations that we're now targeting make loans that are helping communities. The CUSO can help improve those communities," said Isenhour, who spends half of her time with the new subsidiary and the other half as vice president of financial services at the credit union overseeing research and development and operations.
For starters, since April 28, LGFCU Financial Partners has met with officials from several counties, cities and towns to discuss how the CUSO can be a commercial lending partner. Isenhour said it's not just about making loans but assessing financial situations and making recommendations such as restructuring debt to improve cash flow or refinancing. The CUSO has also scanned North Carolina to identify those counties that may have a need for commercial loans. So far, a dozen have been targeted and plans are in place to meet with their respective county finance directors.
"These counties are often in poor parts of the states where other financial institutions don't want to make loans," Isenhour said.
While commercial loans will be the main offering, there are no immediate plans to offer other business services or Small Business Administration loans. Isenhour did say they want to price their current loans competitively--a move that could offer pacing against some of the larger financial institutions in the area.
"And, I know we will run up against more of them now that we have the CUSO. We ran into many community banks with the fire and rescue organizations," Isenhour said.
LGFCU Financial Partners has garnered praise from the North Carolina Association of County Commissioners, the trade group representing the state's 100 counties, Isenhour pointed out.
Meanwhile, Maurice Smith, president/CEO of LGFCU, said the trend in the credit union industry is to have unrelated select employee groups.
"That's not a condemnation. Our credit union has limited its market share," Smith explained. "Setting up this entity to lend to local government units positions the credit union to be an employee benefit and a corporate vendor."
Isenhour agreed, "While a lot of credit unions are running away from their membership, we're running towards our members."
Over the next few months, Isenhour will continue to pitch the commercial lending alliance to boards. She is confident that the CUSO has something different to offer.
"We're not focused on profits but we need to be self-sustaining," she said. "We want to leverage the credit union mission of building and serving communities."