Neenah, Wis. - CUSOs' involvement with member business lending has allowed many credit unions to offer their small business members the types of loans they typically couldn't get from other lenders. But CUSOs' role in business services hasn't stopped with MBLs. Some CUSOs, such as Business Lending Group, were formed expressly to find, originate, underwrite and service business loans. BLG does this for loans of less than $50,000 for its three founding Wisconsin credit union owners - Prospera CU, CitizensFirst CU, and Fox Community CU. Pioneer CU joined the CUSO last year. In BLG's case, loans facilitated by the CUSO are participated among the four member CUs and loans are booked on the lead credit union's books. Deposit products are also provided by the lead CU. The CUSO is currently managing more than $170 million for the four CUs with 435 member business loans. Mountain America Financial Services LLC, a wholly-owned CUSO of Mountain America FCU, Salt Lake City, Utah has two primary divisions that offer investments, and new property and casualty insurance. It also has a member business lending division which it shares ownership with America First CU, and is in the final stages of entering into trust services. MAFS doesn't originate member business loans, but it operates as a manufacturing facility for SBA loans and handles the processing and issues credit memoradums for CUs' SBA loans. "The biggest barrier for credit unions' entry into business lending is the high cost of regulation and compliance issues. A government loan requires a lot of expertise and staffing, and that's what keeps a lot of credit unions from getting involved. By having a consortium of credit unions that own one manufacturing facility that's responsible for manufacturing the loans allows credit unions to get control of those loans," MAFCU EVP Don Clark explained. In January 2002, MAFCU hired Kent Moon as the president of Member Business Lending LLC. Moon came with 30 years of experience in the SBA market including working as a former SBA financial analyst/senior technical advisor to the SBA under former President Ronald Reagan, working as the SBA senior VP of a large bank program, and serving as the SBA district director for Utah. MAFS is currently assisting three other credit unions with making SBA loans. It is also in the process of talking with two leagues and 10 other CUs. Each credit union is responsible for sending its small business loan to MAFS for packaging, but Clark said each CU ultimately decides if they want to do the loan for the member. If the credit union decides to do the loan, then they also own it and fund the loan. The average size business loan MAFS has made is $43,000. So far, Mountain America FCU has funded 204 loans worth $12 million. An additional 43 business loans were approved but weren't funded. The credit union is the number one SBA lender in Utah and ranks 33 in the U.S. by the number of loans funded. Credit Union Business Services, a CUSO owned by 10 Alabama credit unions and the Alabama Credit Union League also acts as a conduit for credit unions to offer SBA loans. The CUSO packages the loans for the CUs, using Newtek's relationship with CUNA to provide underwriting, servicing and funding of the loans. Mark Cooper, president of the CUSO, said CUBS is considering offering MBLs "in the future" and is in the process of putting a program in place which he said will be "very innovative" that will interface with a core processor and allow CUs to have a commercial loan application system. "We've taken the approach that we think credit unions can be a big help to small businesses- those that are $2.5 million or less in sales and have an average of 10-20 employees - that are in dire need to get help with things like payroll processing and employee benefits," he said. That's why the CUSO decided to have its own Professional Employment Organization (PEO) - CUBS Resources. "We took the approach that credit unions have been opening checking accounts and offering deposit services for years. Now we want to help credit unions be a conduit for other services. Small businesses need help with day-to-day stuff they typically have to reach out to CPAs and attorneys for. By forming a PEO, we can help small businesses that are members of credit unions with all the human resource types of things that tie them down," Cooper explained. For example, the PEO will be able to supply small business health insurance, 401K and 125 plans. CUBS began offering its PEO on April 5, and its 10 investor CUs are currently participating in it. The CUSO intends to open the product up to the 170 CUs in Alabama within six weeks, and after that it plans to offer it to CUs nationwide under a different fee base. Although the NCUA Board passed a rule in September 2003 allowing federally insured credit unions to invest in CUSOs for business loan originations, some CUs have still elected to offer MBLs directly rather than going through their CUSO. Redstone CU, Huntsville, Ala. always handled member business loans directly through its business development department. EVP Joe Newberry said "it was a better fit" to continue to offer the MBLs direct from the credit union because of the CU's organizational structure. Redstone recently received approval from the SBA to be a designated lender and the $1.6 billion CU has been actively engaged in making member business loans since January 2005, including SBA loans. So far Newberry says Redstone has completed about $1 million in MBLs. Redstone also hired a former SBA director for the state of Alabama, Jack Wright, as its assistant vice president of business lending, but it was doing investments and insurance through its wholly-owned CUSO Redstone Services Corp. While Redstone kept the MBLs on the credit union's CUSO - Redstone Services Corp. - handled investments and insurance. Earlier this year the credit union created an insurance and investments division and moved these products back under the credit union umbrella "because most of the resources were there," explained Mike Goodman, evp of operations and technology for Redstone CU and president of Redstone Services Corp. "We were just duplicating efforts. We looked at three things - operational efficiency, marketing opportunities, and staff integration. This way we've been able to pull together and have a more streamlined approach," he said. Goodman explained that the CUSO still exists but it's "inactive." Even though the credit union isn't offering any products through the CUSO, Goodman said the credit union decided to keep the business "in case other opportunities arise where we need a CUSO to serve non-members. That way we won't have to go through the motions to crank up a new business." NACUSO President Bob Dorsa said when it comes down to whether a credit union should offer member business loans - or any product - through a CUSO or direct from the CU, "credit unions should be using CUSOs for the right reason. Even though the CUSO becomes the step child in some cases, it exists to help credit unions achieve their objective. If credit unions are to remain competitive, they can't get bogged down with operating a CUSO just for the sake of having this separate business if the credit union determines it's not in their best interest." -

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