Enter the $297 million Erie Federal Credit Union in Erie, Pa. The cooperative knew at some point it wanted to move in the direction of offering business loans and other related services, but the bank merger ramped up efforts to get a program up and running, said Sandi Carangi, vice president of business development. The acquiring bank was not interested in offering business loans anymore, she recalled. Former employees of the acquired bank and staff at economic development groups asked Erie if the CU would be interested in filling the void.
"That's when we kicked it in to high gear," Carangi said. "There were businesses that wanted to do business with us, but they also wanted things like checking accounts and credit cards."
While Erie had offered business loans on a very limited basis since 2007, becoming a co-owner of business lending CUSO Keystone Business Lending Solutions LLC, it was in 2008 that the CU launched a more aggressive program that included creating brochures, a Web site and running ads to showcase loans, business checking and credit cards. From 2007 to 2009, Erie's business loan portfolio went from two loans to nearly $8 million. Business deposits were just over $2 million at the end of last year, Carangi said. A partnership program with local businesses where members can apply for an Erie loan right on site formed. The CU also partnered with trade groups to become sponsors, which brought in even more business members.
As a result of its marketing blitz, Erie experienced 32% loan growth and increased average loan balances and a jump in loan-to-share ratio from 55% to 64%. For its efforts, the CU received CUNA Mutual Group's 2009 Excellence in Lending award for business lending at the CUNA Lending Council's conference last November.
"First, they came up with a creative program. Secondly, it is executing very well," said Dan Kaiser, vice president and product executive of payment protection at CUNA Mutual, who presented the award to Erie and other winners. "They have impressive loan growth and many more members are connected to the credit union."
A big part of Erie's plan is to continue to get the word out that the CU now offers business loans and services, Carangi said. Ads placed in trade and chamber magazines and Web site banner ads have brought in strong returns, she noted. Erie also developed new relationships through local trade shows, which typically attracted up to 200 businesses. At one particular show, the CU attached a coupon for a free soda to one of its business service brochures. Seventy businesses came over to Erie's booth, and several new alliances were formed. Erie also became the sponsor of several trade groups' shows, a move that has also increased membership. In 2009, the CU did about six shows and has already done two this year. Playing up the CUNA Mutual award has helped to quiet some skeptics who argue CUs are green to business lending and should bow out, Carangi said.
Meanwhile, Erie's merchant direct loan program came about at the end of 2008 when some business owners approached the CU about how the cooperative could help their customers, Carangi said. They wondered if it would be okay to hand out Erie's brochures or loan applications. The request was met with some trepidation.
"We were worried people would think we were affiliated with that business. We wanted to be sure the members were protected," Carangi explained.
One small business owner told Carangi why having such a connection would benefit firms, the CU and members. The entrepreneur had ceased working with a lender because it had restricted relationships to those with credit scores over 700.
"This was happening more and more as banks started tightening their lending restrictions and upping their interest rates," Carangi said.
After discussing the idea with Erie President/CEO Norb Kaczmarek, who liked the proposal, Carangi moved forward working with attorneys to come up with an agreement that would protect the CU and members from liability. The businesses involved in the program are put through a rigorous screening process to ensure they are worthy of aligning with Erie. After six months of due diligence, the merchant direct loan program launched in April 2009. Eleven businesses are now partners and loan applications have come in each week since the program's debut, Carangi said.
The program has also yielded several cross-sell opportunities. One business invited Erie to a recent open house. Attendees who came to hear about home improvement solutions not only inquired about financing but also asked about auto loans and mortgage refinancing.
This year, Erie has plans in place to expand its business service marketing campaign to Crawford County, a new area approved through a community charter a few years ago. More radio ads and guest spots on local business talk shows are also in the works. For the first time ever, Erie has a budget in place to make all of this happen. The feedback it continues to receive from the business community has helped shape Erie's program, Carangi said. The CU added the MasterCard Easy Savings rebate card this way and tailored a checking account by creating an additional tier to woo others. "They have told us what would make them switch over to the credit union," Carangi said. "What we're trying to do is fill their needs."