Choices Federal Credit Union was nervous but interested about offering a microenterprise loan program at the suggestion of a local foundation.
The $474,000 credit union in St. Louis struggled to structure a product that would be large enough in scale but also be acceptable to regulators, according to the Missouri Credit Union Association.
Last fall, the answer came from a meeting between Choices and its long-term industry mentor, the $211 million St. Louis Community Credit Union. Leaders on each side developed a program in which Choices would introduce a microenterprise product to its borrowers, and St. Louis Community would agree to purchase a 90% participation in each loan closed under the program.
The loans under $35,000 will assist aspiring entrepreneurs and small business owners to finance the start-up or expansion of their businesses, said Phil Minden, Choices FCU's chairman.
Choices also received a $15,000 grant to aid the program thanks to the local foundation that originally suggested the product, according to the MCUA. The grant allows the credit union to close up to $100,000 in microenterprise loans. Choices plans to offer loans for the next two years, expanding its portfolio to $250,000, and then move forward independently.
Minden said he is pleased with the outcome especially since the loans will target a segment of the market that is largely underserved by traditional financial institutions.
“The collaboration [with St. Louis Community] is an excellent example of how larger, more established credit unions can work with small, emerging credit unions to expand their product base and grow their balance sheet,” Minden said.
Mike O’Brien, St. Louis Community senior vice president and chief marketing officer, said he is excited about the partnership.
“Most financial institutions don’t want to offer micro loans, but it’s a natural [fit] for both of our credit unions. Working together makes a lot of sense – practically and philosophically,” O’Brien said.