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In 2004, one of our then soon to be credit union clients, advertised to its large member base and the local business community that they were now offering loans to businesses for equipment, vehicles, real estate etc. The response was overwhelming as the calls from local business members poured in. However, this credit union quickly discovered that the small to mid-sized business owners wanted a lot more than a low interest rate. They demanded 100% financing, zero down, deferred payments, residuals on vehicle fleet programs and fast turn around. In effect, they were looking for leasing type programs that could be found at any of the commercial banks in town. Unfortunately, at the time, the credit union was not able to assist many of these prospects. As a result, the credit union outsourced a complete line of equipment, vehicle and rolling stock leasing programs. The marching order was to “say yes” we can help and then cross-sell the credit union’s other business services, deposit and cash management programs. The Equipment Leasing Association estimates that more than 70% of all businesses use leasing to acquire or finance equipment. Just look around your credit union or any of your member’s businesses. You’ll quickly realize that a good portion of the computers, copiers, furniture, medical equipment, fleet vehicles and all types of trucks, yellow metal, and restaurant equipment are leased due to the many advantages leasing offers. Usually these deals are under $100,000 and can be approved on a single page application, papered within hours of approval by email and closed using overnight delivery. In addition to the fact that lease payments are usually a tax-deductible business expense, other advantages may include: * conserving capital * enhancing cash flow * preserving existing credit lines *avoiding long-term commitment to equipment that may potentially become obsolete * terms can vary between 12 and 120 months Credit unions are just beginning to develop business lending departments or joining CUSOs. Very few of the CUSOs and credit unions, if any, have equipment leasing expertise or programs to book, service and administrate a strong leasing program that includes $1.00 buy out, fair market value, residual, step, deferred or even rental programs. Most credit unions’ business lending policies include an 80% loan-to-value provision and require a personal guarantee on almost all loans. Leases are more apt to be based on 100% LTV with the first and last payment up front. A company looking for a fast turnaround and preservation of capital might consider the 80% LTV noncompetitive when compared to a lease. To overcome these factors and have the ability to service the credit union’s business members, the leases are not originated by or placed in the credit union’s portfolio. They are immediately bought by a finance company and fee income is driven directly back to the credit union on a totally nonrecourse basis. I believe that a natural progression for many credit unions’ business lending departments will be a “vendor program,” a system similar to their auto indirect lending system. In effect, the credit union creates a lending/leasing program and system that businesses can use when selling its equipment or services. Here is an example of a vendor program that was created for a company that manufactures a machine that produces a gas from distilled water for light welding. This company has a U.S. patent on their equipment and they are the only firm in America with this technology. They want to maintain ownership rather than pass that right on to the end user. One of the finance products that would satisfy their request is a rental program where ownership is passed back to them after the terms of the rental agreement are satisfied. The rental program works for all parties. The customer obtains the right to use this new technology without ownership obligation. The vendor has a finance method to place their equipment while maintaining ownership and the credit union receives fee income and hopefully a new business member and maybe a new SEG. Small to mid-sized businesses have been the most underserved sector by the banking community. Community banks have become in effect a commodity, with merger mania leaving many businesses not knowing who their banker is or even what the new name of the bank is. Using the credit union philosophy of helping members applies directly to the small business and owner. In addition to offering business loans and leases, it’s vital to provide a strong business deposit and cash management program. Business services are an irreversible trend for credit unions. With the average age of CU members increasing and share growth decreasing a complete business services program could help increase membership and share growth for many years to come.

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