When a bank in Indiana known for its robust business lendingprogram was bought by a larger competitor in 2008, it left manylocal firms scrambling for other financing alternatives.

Enter the $297 million Erie Federal Credit Union in Erie, Pa.The cooperative knew at some point it wanted to move in thedirection of offering business loans and other related services,but the bank merger ramped up efforts to get a program up andrunning, said Sandi Carangi, vice president of businessdevelopment. The acquiring bank was not interested in offeringbusiness loans anymore, she recalled. Former employees of theacquired bank and staff at economic development groups asked Erieif the CU would be interested in filling the void.

“That's when we kicked it in to high gear,” Carangi said. “Therewere businesses that wanted to do business with us, but they alsowanted things like checking accounts and credit cards.”

While Erie had offered business loans on a very limited basissince 2007, becoming a co-owner of business lending CUSO KeystoneBusiness Lending Solutions LLC, it was in 2008 that the CU launcheda more aggressive program that included creating brochures, a Website and running ads to showcase loans, business checking andcredit cards. From 2007 to 2009, Erie's business loan portfoliowent from two loans to nearly $8 million. Business deposits werejust over $2 million at the end of last year, Carangi said. Apartnership program with local businesses where members can applyfor an Erie loan right on site formed. The CU also partnered withtrade groups to become sponsors, which brought in even morebusiness members.

As a result of its marketing blitz, Erie experienced 32% loangrowth and increased average loan balances and a jump inloan-to-share ratio from 55% to 64%. For its efforts, the CUreceived CUNA Mutual Group's 2009 Excellence in Lending award forbusiness lending at the CUNA Lending Council's conference lastNovember.

“First, they came up with a creative program. Secondly, it isexecuting very well,” said Dan Kaiser, vice president and productexecutive of payment protection at CUNA Mutual, who presented theaward to Erie and other winners. “They have impressive loan growthand many more members are connected to the credit union.”

A big part of Erie's plan is to continue to get the word outthat the CU now offers business loans and services, Carangi said.Ads placed in trade and chamber magazines and Web site banner adshave brought in strong returns, she noted. Erie also developed newrelationships through local trade shows, which typically attractedup to 200 businesses. At one particular show, the CU attached acoupon for a free soda to one of its business service brochures.Seventy businesses came over to Erie's booth, and several newalliances were formed. Erie also became the sponsor of severaltrade groups' shows, a move that has also increased membership. In2009, the CU did about six shows and has already done two thisyear. Playing up the CUNA Mutual award has helped to quiet someskeptics who argue CUs are green to business lending and should bowout, Carangi said.

Meanwhile, Erie's merchant direct loan program came about at theend of 2008 when some business owners approached the CU about howthe cooperative could help their customers, Carangi said. Theywondered if it would be okay to hand out Erie's brochures or loanapplications. The request was met with some trepidation.

“We were worried people would think we were affiliated with thatbusiness. We wanted to be sure the members were protected,” Carangiexplained.

One small business owner told Carangi why having such aconnection would benefit firms, the CU and members. Theentrepreneur had ceased working with a lender because it hadrestricted relationships to those with credit scores over 700.

“This was happening more and more as banks started tighteningtheir lending restrictions and upping their interest rates,”Carangi said.

After discussing the idea with Erie President/CEO NorbKaczmarek, who liked the proposal, Carangi moved forward workingwith attorneys to come up with an agreement that would protect theCU and members from liability. The businesses involved in theprogram are put through a rigorous screening process to ensure theyare worthy of aligning with Erie. After six months of duediligence, the merchant direct loan program launched in April 2009.Eleven businesses are now partners and loan applications have comein each week since the program's debut, Carangi said.

The program has also yielded several cross-sell opportunities.One business invited Erie to a recent open house. Attendees whocame to hear about home improvement solutions not only inquiredabout financing but also asked about auto loans and mortgagerefinancing.

This year, Erie has plans in place to expand its businessservice marketing campaign to Crawford County, a new area approvedthrough a community charter a few years ago. More radio ads andguest spots on local business talk shows are also in the works. Forthe first time ever, Erie has a budget in place to make all of thishappen. The feedback it continues to receive from the businesscommunity has helped shape Erie's program, Carangi said. The CUadded the MasterCard Easy Savings rebate card this way and tailoreda checking account by creating an additional tier to woo others.“They have told us what would make them switch over to the creditunion,” Carangi said. “What we're trying to do is fill theirneeds.”
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