Credit Unions and Community Impact Lending: A Gold Mine

For decades Vancity Credit Union has been a leading innovation of cooperatives in Canada. US credit unions have traveled north of the border to visit this creative center of credit union evolution.

Today, Vancity is Canada’s largest community credit union, with $27.4 billion in assets plus assets under administration, more than 534,000 member-owners and 59 branches in Metro Vancouver, the Fraser Valley, Victoria, Squamish and Alert Bay.

As one element of its strategic plan, the credit union developed the concept of “impact lending and investing.”

Vancity also provides stories to illustrate how these concepts apply in both traditional and non-traditional lending programs.

The Need and a US Example

A number of credit unions have also explored this “impact” approach for their communities. This focus has become more critical as companies of all sizes are finding it harder to get loans. In a Pepperdine/Dunn & Bradstreet survey only 28% of small business reported success in getting bank loans during the September quarter, down from 32% in the second quarter.

California Coast Credit Union has tried to increase its community impact in several ways, with small business lending a more recent area for focus.

Robert Disotell, Chief Lending Officer, sent me a case study of how this opportunity is being implemented:

The business owners (husband and wife) had been individual members for many years. They decided to leave their jobs and form a company that leveraged their many years of experience as employees of other companies. They opened several business accounts with CalCoast, but no loan products since they didn’t have an immediate need. And we did not offer business loans or lines of credit at that time.

 Fast forward 18 months. The members happened to mention to one of our tellers that they may need an equipment loan. Good timing, since we had just rolled out our equipment term loan and line of credit products. The teller contacted our Commercial Services Officer and he in turn set up a meeting with the members. He and I met with them to find out more about their business.

I should mention at this point we were somewhat skeptical. The company was less than two years old, they were a contractor, and most of their work was through the government. All high risk red flags. But we took the time to meet at their facility, and we were impressed. Here is what we found:

  • They had excellent revenue growth their first full year of operation
  • Their expenses were extremely well-managed
  • They had grown with no debt, completely unleveraged (except for small trade balances)
  • They had accumulated significant cash balances in their business accounts (on a daily average basis)
  • Their Accounts Receivable and Accounts Payable were in great shape and well-managed
  • They managed to do all this without a line of credit. This is almost unheard of for a contractor, where cash cycles tend to be longer than other businesses.

We felt their story was compelling enough to go forward and provide them with an equipment loan ( a basic five year amortizing loan) and a one year line of credit at Prime +2%. They still haven’t used the line of credit, but they said they believe they will soon because revenues are on track to almost triple this year!

From a community impact standpoint, the additional equipment has given them the ability to bid on larger, more profitable jobs. It also meant hiring additional employees to form a crew to operate the machinery. So certainly helpful for the local economy. Also, this is a woman and minority-owned (Hispanic) company.

The lesson is this. There are so many opportunities to work with your local businesses. They are being abandoned by not only the big banks, but also smaller regional and community banks. This is a gold mine for CUs. Take the time to learn their business. Understand and assess their character. Ask probing questions. Be one of their key partnerships. Learning and understanding how your local businesses operate – it is extremely fun and rewarding (and profitable!).

 Robert Disotell | Chief Lending Officer

California Coast Credit Union | 858.636.4282 | calcoastcu.org

 

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