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Credit unions urged to make more loans to small firms Most credit unions do little lending to businesses

Small-business advocates want credit unions to do more lending to local businesses, but many credit unions say they're not yet interested.

Organizations like MicroBiz Buffalo and the U.S. Small Business Administration are actively encouraging the nonprofit credit unions to partner with them -- or each other -- in reaching out to local small businesses.

The organizations say credit unions have a valuable role to play in supporting communities and revitalizing neighborhoods by helping businesses grow.

"We all want to help the community grow, and the best way to help communities grow is to help businesses succeed," said Jerry Turcotte, coordinator of MicroBiz Buffalo, at the group's Building Bridges to Small Business forum, co-sponsored last week by Enterprise Center, the New York State Credit Union League and SEFCU.

"We love anyone who wants to give money to our clients," said Susan McCartney, executive director of the Small Business Development Center at Buffalo State College. "Finding capital for entrepreneurs is our biggest challenge."

In particular, they say, credit unions can fill a niche by lending to businesses too small to garner interest from banks.

"Some banks don't really concern themselves with the small business loans," said Franklin Sciortino, Buffalo district director for the Small Business Administration. "We're fortunate here that the banks in Western New York service our small businesses well. But there's still room for more."

Only a handful of local credit unions have dipped their toes in the water, or plan to do so, with even the area's largest locally based credit union saying it just hasn't yet been a priority.

"This has not been an area that has been heavily marketed by us," said Irene Bull, vice president of lending at Cornerstone Community Federal Credit Union in Lockport, in an e-mail.

Cornerstone is the area's largest local credit union, with $244 million in assets and 42,000 members. But it had just 10 "member business loans" on its books for $10 million at the end of the second quarter, a small fraction of its overall lending.

"We have concentrated on other services that have been introduced," Bull said. "I am sure our strategic goals will include strengthening this department in the near future."

The efforts by the various advocacy agencies and organizations, and the somewhat lackluster response to date by credit unions, represents one of the challenges facing small businesses and their supporters: How to get more capital into the hands of entrepreneurs.

Small businesses are the engine of the U.S. economy, with 23.7 million small companies accounting for 99.7 percent of employers. Small businesses provide seven of every 10 new jobs, and pay about 44 percent of the country's private payroll, according to the SBA.

Banks have become more active and aggressive in lending to small businesses. But it costs the same to generate a loan, no matter the size, so banks are more likely to go after larger loans to justify their effort.

That's where the advocates say credit unions can come in. Credit unions are nonprofit, community-oriented institutions that are owned by their members. Their mission is usually to serve underserved markets, and they are generally much smaller and more local than banks. So advocates see credit unions as a natural fit.

"Small business people want to talk to people who can make decisions," said Paul Hoffman, SBA lender relations specialist here. "Credit unions certainly have a unique opportunity to provide some of these services."

The SBA provides government guarantees for business loans to make lenders comfortable in extending credit. The agency used to use only banks, but is now trying to add credit unions.

The problem is that credit unions historically have not been active in business lending. Federal regulations currently restrict them to having no more than 12.25 percent of their portfolio in business loans, unless they have a special exemption as a low-income or community development credit union.

So most of them aren't familiar with business lending, and don't have the staff, expertise or systems in place to handle it.

"Maintaining a knowledgeable staff in this area is somewhat difficult," Bull said. "Your intent must be to give the program all the necessary time and education possible to promote the products you offer."

Currently, only one credit union in the Buffalo area -- Olean Area Federal Credit Union -- and one in Rochester participate with SBA, out of at least 140 in the two metropolitan areas. And Olean has just $10 million in business loans, out of $140 million in assets.

Others, like Niagara's Choice Federal Credit Union and Niagara County Federal Credit Union, do very little business lending, although they acknowledge they may not know how personal loans are being used.

"We always want to be able to serve our members' needs," said Niagara County Federal president and CEO Nancy Kasprzak-Whitmore. "If that means we need to offer small business loans, yes, we are interested."

Some want to get into business lending, but aren't sure how.

That's the case with Lancaster Depew Schools Federal Credit Union, which may apply to regulators for a community charter and wants to be ready to serve the needs of businesses. It has 3,100 members and $20 million in assets, more than double its size five years ago.

"Our members have really been looking for a little bit more than what we're offering right now in the business lending arena," said CEO Anne Sweeney.

That was the purpose of last week's forum, at which speakers urged local credit unions to work with them, commercial loan brokers, or other business and community development groups to tap into the small business community. They also suggested partnering either with each other or with loan funds to gain experience, learn the process, and share the risks.

"It's one of the best opportunities to originate loans," said Robert J. MacLaco, executive vice president of lending and commercial services for Albany-based SEFCU, which has $70 million in business loans and now has a branch in Buffalo.


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