Roughly 800 people from across the Northwest are in Vancouver this week with a message they want to share in both Washington state and Washington, D.C.: Credit unions mean business. Literally.
The Northwest Credit Union Association, a trade group that represents 164 Oregon and Washington financial institutions, is holding its annual meeting at the Hilton Vancouver Washington through today. One of the group’s top priorities this year is the Small Business Lending Enhancement Act, a law sponsored by Rep. Jaime Herrera Beutler, R.-Camas, that would double the amount of money that credit unions can lend to businesses.
Meanwhile, officials at many individual credit unions said they want to get the word out that despite federal caps on lending, they can do more than many small businesses realize.
“We do an awful lot of small business lending,” said Roger Michaelis, president and chief executive officer of iQ Credit Union in Vancouver.
But as iQ issues more loans to small businesses, it is getting close to a federal cap on credit union business lending. Michaelis said iQ has asked state officials to waive the cap, but that waiver is not available to all federally chartered credit unions or those based in some other states.
Business loans are capped at 12.5 percent of total assets, though state-chartered credit unions such as Columbia Credit Union and iQ can ask Washington regulators to allow them to lend more. The Small Business Lending Enhancement Act would raise the cap to 25 percent of total assets. Other lenders, such as banks, do not have such restrictions on lending.
More than a business
Bill sponsor Herrera Beutler said the law change seems like a no-brainer to her.
“Credit unions aren’t just a business — I like businesses, we want more — but they are so much more. They are part of a community,” she told a supportive crowd at the Northwest Credit Union Association convention on Wednesday. “It takes an act of Congress for you all to expand. That’s pretty sad.”
Credit unions have been fighting, with limited success, to increase or eliminate caps on business loans since those restrictions were put in place in the 1990s. Troy Stang, CEO of the credit union association, said he’s hopeful things could change in the year ahead. Senate leaders have indicated that the issue will at least come to a vote, he said.
Among the criticisms of the Small Business Lending Enhancement Act: it could make credit unions less stable by opening the door to risky loan decisions, and it would take credit unions away from their historic roots as small community institutions. And bankers, who complain that they must pay taxes that nonprofit, member-owned credit unions are not subject to, continue to oppose a law change.
Steve Kenny, president and CEO of Vancouver-based Columbia Credit Union, said concerns about credit unions’ financial integrity are unfounded. There would still be strict limits on loan concentrations and regulators making sure that credit union underwriting is sound, he said.
Even credit unions such as Columbia that have received waivers to write more business loans face a challenge to get on the radar of small businesses. Columbia has $118 million in business loans on its books — more than any other credit union in Clark County. It issued $33 million in new business loans this year, mostly to small local operations. But it has room to issue at least another $100 million in business loans.
“We do have money to lend — and we’re not kidding,” said Colleen Boccia, senior vice president for marketing and chief deposit officer at Columbia,
To get the word out, the credit union has sponsored VancouverBusinessResource.org, contributed time and money to the Columbia River Economic Development Council, and invested heavily in letting local companies know that it offers the same business services as most banks. Columbia officials were delighted earlier this year at a business networking event when Keith Scott, president of Pacific Energy Concepts, praised his experience in obtaining financing with the credit union.
Not all credit unions offer business loans, but those that do often wind up winning customers who’ve been rejected by banks, said Lynn Heider, spokeswoman for the Northwest Credit Union Association.
“Banks can make more money doing loans with bigger businesses,” Heider said, and may not be willing to put extensive effort into developing custom contracts when smaller loans are involved. The average credit union business loan is about $220,000, she said.
Bill Fulk, executive vice president and chief operating officer at Columbia Credit Union, gave one recent example: A company needed cash to move ahead with a business relationship, but was turned down for several bank loans because it could not offer collateral. The credit union worked with the borrower’s clients to secure the necessary loan guarantees, Fulk said. He declined to name the business, because it had not granted him permission to discuss its finances.
Not a cure-all
Credit unions may tout their business know-how, but they’re not a perfect fit for every company.
Although credit unions can pool resources to issue loans as high as $20 million or more, companies seeking large loans may be better served by banks that specialize in these larger debts. It’s rare for a credit union to have the infrastructure in place to work across national borders, and most have limited geographical reach within the U.S.
Credit unions typically require their members to meet certain requirements, and not all businesses qualify for membership in all credit unions. For example, a business must be based in Washington state, owned by state residents, or have more than half of its employees living in the state to bank at Columbia.
Some credit unions offer business services such as direct deposit to their customers, but most don’t.
Michaelis with iQ said that raising caps on credit union lending could spur institutions like his to offer more services to businesses.
“It’s a chicken-and-egg thing,” he said. Loan caps restrict how much credit unions can earn from business banking. “You don’t want to invest in services when there’s not an opportunity to recoup that investment.”