The Rundown

• Founded in 1843, Connecticut shipyard's success tied toevolving with the times.
• Charter Oak FCU's financing will help refinance and fundfuture improvements.
• Expert says credit unions, not banks, open to helpingnontraditional businesses.

Jeff Marshall typically starts his days early at the MysticShipyard, a 169-year old marina with a history steeped in theconstruction of schooners and iron-clad ships to sail the waterwaysof New England.

Marshall, along with Robert Helbig, are co-owners of theshipyard located in Mystic, Conn. Opened in 1843, the marina washome to several ships, including the Jennie R. Dubois, constructedin 1902 and the largest sailing ship ever built in Mystic, Marshallsaid. At a cost of almost $100,000, it was designed to carry 3,000tons of coal or two million board feet of lumber.

After a shift to building catamaran power boats called sea sledsfor racing and recreation and also as tenders for presidentialyachts in the 1940s, the Mystic Shipyard was repurposed again as arecreational marina. It is now home to 165 summer residents andover 300 winter storage customers. The shipyard also offers customshipwright carpentry, fiberglass repair and refinishing, riggingservices, engine repair and re-powering.

When Marshall recently started exploring refinancing andadditional capital opportunities, he turned to his bank of morethan 30 years. Unfortunately, the financial institution was notable to come up with a satisfactory deal, he said. He then wentshopping around and three other banks and the $749 million Charter Oak Federal Credit Union expressed strong interest inworking with Marshall and his team.

In the end, the cooperative in Groton, Conn., brought the mostappealing offer to the table and on July 31, provided a multiyearfinancing package for the Mystic Shipyard that allows the facilityto refinance its existing mortgage as well as fund futureimprovements at the 6.5-acre marina.

For Marshall, it came down to working with a lender that wasable to meet all of the terms he was seeking. He did not want todisclose the dollar amount or the timeframe of the loan.

“Charter Oak jumped through hoops,” Marshall said. “It wasprimarily the loan size we were talking about. It was dollars andsense, interest rate, terms and conditions.”

Brian Orenstein, CEO at Charter Oak, said the Mystic Shipyardloan is among the credit union's three largest commercial loans todate.

“We're pretty excited. We had some pretty stiff competition fromcommunity banks,” Orenstein said.

Charter Oak's financing package will allow the shipyard toundertake planned improvements at the Mystic facility, includingpossible dock upgrades and a new repair facility.

For some time, credit unions have carved a niche within thesmall business sector working with traditional players providingloans for commercial real estate ventures on the high end tofood carts on the low end of the spectrum.

With a shift in the type of businesses that have been formedover the past few years, particularly those tied to the Internet,some lenders are open to embracing the change, said Rohit Arora,co-founder and CEO of Biz2Credit, a New York firm that connectssmall businesses with financial institutions.

“There are lot of businesses that are doing things likesmartphone wholesales, small modeling agencies and online contenttranslations,” Arora has noticed. “Normally, banks will not fundthese businesses because they don't understand them. Most want hardassets. If they perceive a business as risky, they will shy awayfrom it.”

Credit unions and micro lenders tend to be more willing to fundnontraditional businesses, Arora said. With incentives to engage ingreen businesses, the appeal may be more attractive, he added.Biz2Credit has found that online-based businesses are the fastestgrowing sector that is receiving loans.

Indeed, for the past year, online retailer Amazon has beenexperimenting with offering loans to some of it high-volumesellers, according to an Oct. 1 American Banker article.Arora said companies like Amazon are going this route because theirown merchants are finding it harder to get financing from banks.Amazon did not respond to a request for additional information bypress time.

Despite the new competitor entry, Arora still sees opportunities for creditunions.

“They are focused on helping their members. These are folks whoare getting out of corporate jobs and starting their ownbusinesses,” Arora said. “Big banks keep asking 'why do we keeprejecting so many loans when other non-traditional lenders arelending.' I tell them the economy is shifting. If you don't changeyour underwriting standards, you won't approve as many loans.”

Orenstein said having an in-house team of experienced, formerbank commercial lenders officers who've been in the business for 25years and know the local area and a board committee that overseesall loans over $1 million, has kept Charter Oak out of thedelinquency pool since it began offering business loans in 2009.The credit union now has $35 million of them in its portfolio.

“Certainly, there are risks. We believe that some of the creditunions that got into trouble were either outsourcing or throughparticipations or not having experienced staff,” Orensteinsaid.

In addition to the Mystic Shipyard, Charter Oak's largest loanswere to date provided to a mobile home park and as recently asSeptember, a $1.5 million commercial loan for the InterdistrictSchool for Arts and Communication in downtown New London, Conn.

“We have the skills to underwrite in house. We had outsourced inthe past,” Orenstein said. “Using credit scores for commerciallending just didn't make sense to us.”

Charter Oak is open to considering all types of commercial loanrequests within legal lending limits, Orenstein offered.

By nature, credit unions tend to listen to all member businessloan requests to help members whenever possible, said LarryMiddleman, president/CEO of CU Business Group LLC, a Portland,Ore.-based CUSO that serves 398 credit unions in 43 states. Thesemember requests certainly involve nontraditional businesses, headded.

“From my view, credit unions would like to lend tonontraditional businesses such as home-based start-ups and onlinebusinesses, but in reality any loans granted will be in smalldollar amounts,” Middleman said, adding these loans would typicallybe well-secured by residential real estate or other personalassets, as nontraditional businesses don't often have businessassets to pledge as collateral.

“Therein lies the big risks of this type of lending. Nontraditional businessesusually do not have several years of demonstrated, successfuloperations, nor do they have business collateral,” Middleman said.“Credit unions would typically view this type of loan as unsecured,and preferably would obtain an SBA guarantee or some additionalrepayment assurance.”

Still, Middleman continues to see credit unions serving a nichein their markets. For example, a good number of them in Californiause a state guarantee program that fosters new business growth,which allows lending lend to nontraditional businesses, he pointedout.

“However, the majority of credit unions tend to stick to plainvanilla commercial lending which means loaning to businesses withthree plus years of profitably operations and solid real estatecollateral,” Middleman said.

Meanwhile, Marshall at the Mystic Shipyard said he was familiarwith Charter Oak before doing business with the credit union andpromised the financial institution that it would get the majorityof his business going forward. Still, he is not against banks andwas puzzled when he found out that efforts are in place to keepcredit unions from expanding their business lending authority.

“It seems to me that would be fair. Being on the outside lookingin, I'm out for what's best for my bottom line. It doesn't matterif it's with a bank, a convenience store or a credit union; I wantto achieve the best bottom line.”