Bank Mergers and Credit Crunch Are Pushing Small Businesses to CUs
MIRAMAR, Fla. -- If there is a silver lining behind the billion-dollar bank and investment firm mergers and the ongoing credit squeeze, credit unions could be the beacon for small businesses left out in the cold.
That seems to be the sentiment from several business services CUSOs reporting an uptick in not only loans and deposits but queries that probably would not have occurred prior to the most recent marketplace consolidation.
At CU Business Capital, September has been the biggest closing month on record in terms of loan amounts and dollar volume, and October's figures have already surpassed its predecessor, said Murray Halperin, senior vice president of marketing and business development. Because the CUSO has a privacy provision with its clients, it does not release specific numbers. However, Halperin said CUBC has about $150 million in the pipeline for the rest of the year.
"These bank mergers are going to create some huge connection opportunities," Halperin said.
The calls are already starting to come in. Two weeks ago, the CUSO received an inquiry from a bar association in another state that previously housed its deposits with a "very high-profile bank in the news," said Bert Bryan, president/CEO of CUBC. The association wanted to move its deposits rather quickly to a credit union. Another organization also sought out CUBC for a similar transaction.
"There's been a flight of businesses to places where they feel their business and corporate deposits will be safe," Bryan noted. "On the deposit side, those credit unions that prepared themselves with cash management are seeing an increase in deposit balances and fee income."
CUBC serves 28 credit unions, recently expanded its New Jersey-based cash management facility and has hired three more underwriters to keep up with the demand, Halperin said. August and September were record months in terms of loan applications coming through the door, he added. Still, there is much more room for credit unions to grow in the business lending space. Halperin said that of the 2,200 credit unions with business loans on their books, most are loan participations. Bryan cautioned that even though small businesses are scrambling for credit access, due diligence continues to be a critical component.
"It's not just about grabbing any and every thing. The relationships formed now will bring long-term growth to credit unions," Bryan said, with Murray adding that cash management services have the potential to create sticky relationships.
Utah-based Member Business Lending LLC is still the No. 1 Small Business Administration credit union lender in the nation, according to the agency. It has its finger on about 70% of all CU SBA loans and a $230 million loan portfolio (mostly lines of credit) of both SBA and conventional loans, said Kent Moon, president/CEO of MBL. September was also a record month with 222 loans approved. And the increases are coming without having to make any major adjustments.
"Our credit standards are very consistent, and with the current capital crunch, it's opening up an opportunity for us," Moon said. "We're in a target-rich environment. Banks have pretty much stopped lending."
The cutoff is typical of bank merger fallouts, Moon explained. Small business lending is usually the first on the chopping block. Traditionally underserved by banks, he said, the small business market represents more than 98% of the nation's economy. MBL delinquency and loss rates are less than 1%, compared to 7.5% for the banking industry's late loans, Moon noted.
"With this restriction in capital because of the subprime market, it emphasizes what small businesses have always had to confront--cycles of inappropriate banking," Moon said. "What's happening now represents a change in the market. Credit unions can adapt to the changes, expand their lending base and increase capital."
California-based Business Partners LLC with its $1.6 billion loan portfolio has not been immune to the financial sector's flux. The CUSO has experienced a 25% decline in lending, said Jean Faenza, president/CEO. But, according to her, that's not unusual for most lenders these days. States like California, Florida and Nevada have been hammered with record foreclosures.
"Fortunately, we have commercial real estate and SBA loans. We're doing great," Faenza said. "Those lenders who have SBA loans, at least have a guarantee. It's all about prudent lending in today's world."
Business Partners has seen its credit union lenders requiring more collateral as capital access shrinks and banks turned the spigot to a trickle on applications, Faenza said. Before, businesses leveraged to grow their companies. Now the emphasis is on stabilization, she pointed out. The restrictions create streams for downtrodden business owners looking for relief.
"What we're seeing is borrowers wanting someone to sit down and talk to them. What we're hearing from them is at their banks, everything is cookie cutter," Faenza observed. "Their whole point is 'my lender is walking away from me so why should I keep my deposits here.'"