MANCHESTER, N.H. – Long before most credit unions ever heard the phrase `member business lending’ or NCUA had a regulation on the product, New Hampshire’s credit union code allowed state-chartered credit union to offer member business loans. What can other credit unions considering venturing into MBL territory learn from their experiences? There are currently seven SCCUs in the state involved with member business lending, and among those St. Mary’s Bank in Manchester-the oldest CU in the U.S.-is one of the veterans of offering the service. Peter Hildreth, commissioner for the New Hampshire Banking Department said the state’s credit union code does not break out member business loans per se; instead they’re included with residential mortgages and consumer loans. “Since they’re not addressed separately, member business loans are allowed by virtue of the fact that they’re included with other loans credit unions are allowed to make.” Now that the NCUA Board has unanimously approved and sent out for comment proposals to ease the agency’s MBL regulation, making it easier for more credit unions to offer the service a veteran credit union of member business lending, St. Mary’s Bank reflected on its years of offering member business products and offered some suggestions to other CUs considering them. St. Mary’s Bank has been offering member business services since the early 1980′s, making it one of the handful of credit unions that were involved in the product offering at that time. The $450-million CU now has about $30 million in its business loan portfolio. Its total loan portfolio is $311 million. John Flanders, vice president and business lending group manager for St. Mary’s Bank explained that the CU’s member business loan department – including two lending officers, a credit analyst, a manager (Flanders), and an administrative assistant – offer a wide variety of business services such as lines of credit, commercial real estate loans, and equipment loans. The number one lesson Flanders wants to pass on to other credit unions considering getting into member business lending is “develop policies and procedure before offering a business product. You have to first have a game plan. Credit unions, and most financial institutions actually, have a tendency to sometimes want to get to the end before they have a roadmap.” While this can be potentially hazardous under any circumstance, Flanders said it’s particularly so with business lending because of the risks that are inherent with the product. “There’s an added dimension of risk involved with business lending because you’re not just dealing with the behavior of the borrower, but of the business as a separate entity. You have to know how the business works and makes money,” he said. “Lending to business is governed by the three C’s of credit – collateral, character, capacity,” Flanders added. “Regardless of what type of financial is doing the business loan, that’s a reality they have to deal with.” Responding to banks’ comments that credit unions should not be allowed to get involved with making business loans because They’re too inexperienced handling these types of products, Flanders stressed that St. Mary’s “has put experienced people in place who understand business lending and implemented policies and procedures with a formula for success.” He added that, “Credit unions, by their nature, are member focused, and that tends to reduce risk.” Having said that though, Flanders strongly advised credit unions that, “You can’t just get in to business lending on a whim. You need to get it right and make a commitment to it. Making business loans require a lot of seasoning and prior experience, especially with the credit analysis piece. It’s a hard skill to just learn in the classroom. It takes hands-on experience to learn and master.” -

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