Charter Oak FCU Steers Shipyard to Smooth Sailing
Jeff Marshall typically starts his days early at the Mystic Shipyard, a 169-year old marina with a history steeped in the construction of schooners and iron-clad ships to sail the waterways of New England.
Marshall, along with Robert Helbig, are co-owners of the shipyard located in Mystic, Conn. Opened in 1843, the marina was home to several ships, including the Jennie R. Dubois, constructed in 1902 and the largest sailing ship ever built in Mystic, Marshall said. At a cost of almost $100,000, it was designed to carry 3,000 tons of coal or two million board feet of lumber.
After a shift to building catamaran power boats called sea sleds for racing and recreation and also as tenders for presidential yachts in the 1940s, the Mystic Shipyard was repurposed again as a recreational marina. It is now home to 165 summer residents and over 300 winter storage customers. The shipyard also offers custom shipwright carpentry, fiberglass repair and refinishing, rigging services, engine repair and re-powering.
When Marshall recently started exploring refinancing and additional capital opportunities, he turned to his bank of more than 30 years. Unfortunately, the financial institution was not able to come up with a satisfactory deal, he said. He then went shopping around and three other banks and the $749 million Charter Oak Federal Credit Union expressed strong interest in working with Marshall and his team.
In the end, the cooperative in Groton, Conn., brought the most appealing offer to the table and on July 31, provided a multiyear financing package for the Mystic Shipyard that allows the facility to refinance its existing mortgage as well as fund future improvements at the 6.5-acre marina.
For Marshall, it came down to working with a lender that was able to meet all of the terms he was seeking. He did not want to disclose the dollar amount or the timeframe of the loan.
“Charter Oak jumped through hoops,” Marshall said. “It was primarily the loan size we were talking about. It was dollars and sense, interest rate, terms and conditions.”
Brian Orenstein, CEO at Charter Oak, said the Mystic Shipyard loan is among the credit union’s three largest commercial loans to date.
“We’re pretty excited. We had some pretty stiff competition from community banks,” Orenstein said.
Charter Oak’s financing package will allow the shipyard to undertake planned improvements at the Mystic facility, including possible dock upgrades and a new repair facility.
For some time, credit unions have carved a niche within the small business sector working with traditional players providing loans for commercial real estate ventures on the high end to food carts on the low end of the spectrum.
With a shift in the type of businesses that have been formed over 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 connects small businesses with financial institutions.
“There are lot of businesses that are doing things like smartphone wholesales, small modeling agencies and online content translations,” Arora has noticed. “Normally, banks will not fund these businesses because they don’t understand them. Most want hard assets. If they perceive a business as risky, they will shy away from it.”
Credit unions and micro lenders tend to be more willing to fund nontraditional businesses, Arora said. With incentives to engage in green businesses, the appeal may be more attractive, he added. Biz2Credit has found that online-based businesses are the fastest growing sector that is receiving loans.
Indeed, for the past year, online retailer Amazon has been experimenting with offering loans to some of it high-volume sellers, according to an Oct. 1 American Banker article. Arora said companies like Amazon are going this route because their own merchants are finding it harder to get financing from banks. Amazon did not respond to a request for additional information by press time.
Despite the new competitor entry, Arora still sees opportunities for credit unions.
“They are focused on helping their members. These are folks who are getting out of corporate jobs and starting their own businesses,” Arora said. “Big banks keep asking ‘why do we keep rejecting so many loans when other non-traditional lenders are lending.’ I tell them the economy is shifting. If you don’t change your underwriting standards, you won’t approve as many loans.”
Orenstein said having an in-house team of experienced, former bank commercial lenders officers who’ve been in the business for 25 years and know the local area and a board committee that oversees all loans over $1 million, has kept Charter Oak out of the delinquency 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 credit unions that got into trouble were either outsourcing or through participations or not having experienced staff,” Orenstein said.
In addition to the Mystic Shipyard, Charter Oak’s largest loans were to date provided to a mobile home park and as recently as September, a $1.5 million commercial loan for the Interdistrict School for Arts and Communication in downtown New London, Conn.
“We have the skills to underwrite in house. We had outsourced in the past,” Orenstein said. “Using credit scores for commercial lending just didn’t make sense to us.”
Charter Oak is open to considering all types of commercial loan requests within legal lending limits, Orenstein offered.
By nature, credit unions tend to listen to all member business loan requests to help members whenever possible, said Larry Middleman, president/CEO of CU Business Group LLC, a Portland, Ore.-based CUSO that serves 398 credit unions in 43 states. These member requests certainly involve nontraditional businesses, he added.
“From my view, credit unions would like to lend to nontraditional businesses such as home-based start-ups and online businesses, but in reality any loans granted will be in small dollar amounts,” Middleman said, adding these loans would typically be well-secured by residential real estate or other personal assets, as nontraditional businesses don’t often have business assets to pledge as collateral.
“Therein lies the big risks of this type of lending. Nontraditional businesses usually do not have several years of demonstrated, successful operations, 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 additional repayment assurance.”
Still, Middleman continues to see credit unions serving a niche in their markets. For example, a good number of them in California use a state guarantee program that fosters new business growth, which allows lending lend to nontraditional businesses, he pointed out.
“However, the majority of credit unions tend to stick to plain vanilla commercial lending which means loaning to businesses with three plus years of profitably operations and solid real estate collateral,” Middleman said.
Meanwhile, Marshall at the Mystic Shipyard said he was familiar with Charter Oak before doing business with the credit union and promised the financial institution that it would get the majority of his business going forward. Still, he is not against banks and was puzzled when he found out that efforts are in place to keep credit unions from expanding their business lending authority.
“It seems to me that would be fair. Being on the outside looking in, I’m out for what’s best for my bottom line. It doesn’t matter if it’s with a bank, a convenience store or a credit union; I want to achieve the best bottom line.”