BURBANK, Calif. – Offering what they described as a “road map to successful member business lending,” officials from the federal Small Business Administration have urged credit unions to start offering their members SBA business loans. “Your members are getting SBA loans,” Rick Kresser, a senior lender specialist with the SBA’s Los Angeles district office, told a roomful of credit union officials. “They’re just not getting them from you.” Instead, he said, credit union members are being lured by financial institutions that are “cherry picking” business customers. “They’re taking the best,” Kresser said. “Your best customers are their favorite borrowers.” The seminar on Tuesday, June 14, included presentations by the SBA, NCUA, the California Department of Financial Institutions, the California Credit Union League, representatives of CUSOs and lender service providers and the president of a credit union who described his institution’s foray into member business lending. Joining in the chorus promoting SBA business lending were officials from WesCorp and the league, both of whom hosted the day-long seminar here for credit union executives. An estimated 100 credit union officials attended the program. Timothy Sidley, vice president-risk assessment at WesCorp, said that as Baby Boomers begin to retire, “they’re not going to want to sit home” and would more than likely start up their own small businesses. “The type of member you have out there who needs a business loan is going to grow dramatically over the next few years,” Sidley predicted. “This is a tremendous opportunity for credit unions to get involved. It’s just a great opportunity to develop your member business lending program.” Sylvia Fath, vice president for business services with the California Credit Union League, echoed that opinion during a luncheon speech. “The sheer volume of the small business market presents the credit union industry with a tremendous growth opportunity,” Fath said. “We are the perfect mechanism for these folks.” SBA officials agreed, saying that credit unions were the ideal type of financial institution to reach out with loans to small businesses. “While others see small business as a speck, as an insignificant force, as trouble, as really a market that’s not worth pursuing, others, like yourselves in point of fact, see it as a most powerful force. . .” said Alberto G. Alvarado, district director for the SBA’s Los Angeles office. Alvarado said credit unions involved with SBA business lending would not only better serve their members, but would better serve themselves by attracting new members and ultimately increasing profitability. “By helping our entrepreneurs realize his or her American dream, we create jobs, we create stronger communities and, in point of fact, a better world,” Alvarado said. The SBA’s Los Angeles district – which covers Los Angeles, Ventura and Santa Barbara counties – has over the past two years helped finance 11,000 businesses through some $2.3 billion in loans, Alvarado said. Only a handful of those loans came from credit unions, although many credit unions do offer other member business loans. Fath said 28.2%, or approximately 140 of the California’s 500 credit unions, offered member business lending in 2004. That was up 4% from 2000. Nationwide, she said, 17.6% of credit unions offered those services, up from 14.6% during the same period. “It’s a good time right now for credit unions and lenders with less experience to get into the program,” Kresser said, noting that the SBA has streamlined its procedures, including eliminating much of the paperwork, and would work hand-in-hand to assist credit unions in establishing and running programs. Kresser spent most of the morning explaining the SBA’s lender application process and the loan programs offered through the governmental agency. Some 120 active SBA lenders are in the Los Angeles district; eight or nine credit unions in the region have been approved over the last two years to offer SBA loans, Kresser said. “The challenge seems to be not to get them (credit unions) approved but to get them to do loans,” he noted. “It’s a paradigm shift,” he said. “They’re not used to business lending. It’s mysterious to them. And inherently there are risks. It is more risky than maybe what they do right now. But the returns are there. The return on investment is there. “We’re trying to keep giving them information and build up their comfort level to where they’ll come and at least let us show them how to use that money, that excess cash, that they’re just sitting on right now,” Kresser added. “And many credit unions have excess cash.” He and other speakers suggested that credit unions were approaching SBA lending with extreme caution because of regulatory concerns. Credit unions need to navigate between the California Department of Financial Institutions, the NCUA and the SBA. “If you’re an organization that’s used to dealing only in consumer retail type of services, the next thing you know you’re facing three different agencies: a state and two federal agencies,” Kresser said. “It’s a bit daunting.” “What we want to get across to them is we’re here to help you,” he said. “We’re here to show you how to do this. We want you to do this.” California DFI Commissioner Howard Gould admitted that both the regulator and the regulated were feeling their way along. “Both the industry and DFI in California are learning how to work together to deal with this and we’re both going through, as I understand very clearly, some strains and stresses,” he said. Even so, Gould said that involvement with SBA lending offered credit unions many advantages. “Working with the SBA from our perspective is a way to enhance your practices, policies and procedures as you deal with member business lending,” he said. “Doing it the SBA way is a solid, well thought out effective way of getting involved.” Elizabeth Dooley, deputy DFI commissioner for credit unions, and John Hogue, associate regional director of programs for NCUA Region V, both agreed that SBA procedures required credit unions to carefully follow procedures and policies. “SBA forces you to do things the way you should be doing them,” Dooley said. “We hope it would carry over into other business lending as well.” “SBA loans are not only good for your credit unions, but for the people that you serve,” Hogue said, but added, “It has to fit your credit union.” One credit union where it did fit was Vision One CU. Its president, Bob W. Schultz, provided the audience with an overview of operating a member business loan program. While Vision One opted to keep its program in-house, vendors and CUSOs can offer credit unions a viable and turn-key solution, according to a seminar panel composed of representatives from four outside firms. -

pjheller@west.net