Lower loan rates and fewer fees appear to make credit unions an attractive option
Bank failures, dwindling lines of credit, difficulty finding financing – there's no doubt that the recession has hit Clark County's credit market hard.
However, local credit union executives say their institutions offer business owners a viable alternative for business accounts, loans and services.
"We have money to lend in 2010 and have a healthy [business loan] pipeline," said Ed Turk, iQ Credit Union's senior vice president of member services and chief lending officer.
Turk reported that iQ had approximately $50 million in outstanding business loan balances and commitments as of April 30.
Getting Back into the Game
Laurie Kresl, vice president of planning and business development at Portland-based Unitus Community Credit Union, said that in the early days of credit unions, business accounts, especially in the agricultural area, were common. But later, Kresl said, credit unions changed their focus to serving one particular company's or industry's employees.
In the last few years, however, many credit unions have switched to "community charters" and can now serve all residents – including businesses – within a geographic area. Many of these potential members, Kresl said, need business services but don't want to go to a bank. Kresl said that Unitus' business account portfolio has grown from 394 in 2007 to 1,298 this month at eight branch locations, including one on 192nd Avenue in Vancouver which opened in July 2008.
Turk reported similar success in the commercial lending arena, with business lending at iQ growing 70 percent since January 2007, a 15.2 percent growth in the number of business members in 2010 and a whopping 33 percent growth in business checking account deposits in 2010.
When Scott Conley, president of Essential Building Technologies, started his company five years ago, he turned to iQ Credit Union for his business financing. Conley's Vancouver firm provides building automation systems, such as temperature control and monitoring systems, to commercial buildings.
"The biggest things were the open lines of communication, prompt responses and clear information," Conley said, adding that his previous business financing experience with larger banks was a more "disconnected, slower process."
Pushing for Change
The tight credit market has prompted several changes in the financial arena that affect credit unions' ability to make business loans.
Higher limits for member business loans (MBLs): In 1998, the federal government passed the Credit Union Membership Access Act, which established a member business loan cap of 12.25 percent of a credit union's total assets. According to the Credit Union National Association, pending legislation (H.R. 3380) proposes to increase the cap on credit union MBLs to 25 percent of total assets.
Understandably, banks aren't too excited by the proposal. The American Bankers Association has launched a campaign against lifting the cap, stating that "increasing commercial lending authority is inconsistent with the historic mission of credit unions." But credit union lobbying groups claim that credit unions have the ability to create over 108,000 jobs and inject $10 billion into the economy with the bill's passage.
Columbia Bank vice president and regional manager Mark Brandon objected to what he called a growing "uneven playing field" between commercial banks, which are subject to income tax, and tax-exempt credit unions. "I'm happy to compete with credit unions," Brandon said. "However, they should pay income tax just like commercial banks."
Meanwhile, Turk said that H.R. 3380 "would give businesses access to the credit they need" by enabling credit unions to lend more to business customers.
Public funds deposits: Governor Gregoire signed a bill this year that allows Washington state public units to deposit funds-up to $100,000-in WA state-chartered credit unions. Proponents of the new law, effective July 1, 2011, say it offers more locally-based diversity to Washington state funds. Oregon passed a similar law earlier this year (the main differences being that the Oregon law allows deposits of up to $250,000, and goes into effect in 2013).
Alan Ludlow, vice president manager of member business lending at Columbia Credit Union, said such legislation will "keep deposits working here in the state of Washington."
An Affordable Option with a Personal Touch
Turk said that, because of their nonprofit status, credit unions can offer higher rates of deposit, fewer fees and lower loan rates than most banks.
At least one Battle Ground businessman, Ron Ballensky, found that to be the case. He has always had a business checking account for his motor freight brokerage firm, Dawn Transportation Inc., at iQ Credit Union. But he "bounced around between different banks" for his financing, because 10 years ago, iQ didn't offer business operation loans.
"None of them gave me the real personal, local service I wanted," Ballensky said.
When iQ entered the commercial lending market, Ballensky said they offered him a "very competitive rate."
Nyla Wilson, co-owner of Dot Donuts in Fishers Landing since September 2008, just recently switched her business financing to Unitus.
"It took me a long time to leave my bank and go to a credit union," Wilson said, "but once I made the change, it has been very refreshing."
At her previous bank, Wilson said that despite 14 years of corporate history and a stellar credit rating, she was turned down for a line of credit because her lender said she hadn't owned Dot Donuts long enough. In contrast, she said, Unitus has been willing to work with her on establishing a line of credit.
"They make me feel like I'm not just a number," she said.
Ludlow stressed that credit unions adhere to the "basics of lending," including looking at the loan's purpose, repayment plan, collateral, and industry economics. But Kresl said credit unions tend to often look beyond just credit scores to find unique ways to provide financing to businesses.
"Credit unions are a strong alternative that hasn't been brought to light in the past," Kresl said.