League Director of Governmental Affairs Karin Sherbin submitted the following report of a meeting in Roanoke with an aide to Sen. Warner, Drew Densmore, who noted that on Tuesday he met with a Martinsville DuPont Credit Union representative, while another Warner aide met with staff from DuPont Community (they are hearing us now!).
Who went: Steve Elkins and Barry Smith from DuPont Community Credit Union. Dan Sandberg and Daryl Brubaker from Park View Federal Credit Union. They brought Eric Good, the owner of an excavation and grading company who wants to purchase a small mining company to complement his current business, but cannot obtain financing for the purchase through Park View due to the cap.
Highlights: ParkView reported it was involved in MBLs before the cap, and found itself near the cap at its inception. The staff is constantly updating themselves on where the credit union stands on member business loans. The result: Park View cannot use the money it has on hand to service its business members as well as they desire. One option – besides saying no – is to fish for a participation loan partner.
Steve Elkins, of DuPont Community, noted that doing so means adding to the cost of the loan to the recipient, investing more time in due diligence, increasing risk because of going outside of their credit union, and taking dollars out of the community.
Park View’s Dan Sandberg added that If the business owner wants to make changes to the participation loan, it then becomes a much more complicated process because ParkView cannot say yes on its own.
Park View cannot advertise its MBL program because it cannot fulfill the demand due to the cap.
Park View member Eric Good said he went to Park View after his bank made it difficult for him to get financing for his first truck.
He then he sat down with Park View’s CEO and explained his business and got a loan. He has been obtaining loans from Park View for subsequent expansions until now.
“Everyone’s looking for ways to keep our economy going. The country was built on small business. Henry Ford started with a small business,” Good noted, adding that raising the cap would add capital to the system without using taxpayer dollars.
He said because of the cap, he will either not purchase the complementary business, or he will have to try to obtain financing from a bank. He prefers working with the credit union, where he has a relationship already.
Park View’s Sandberg added that his credit union might have $12 million to loan, but because of the cap, PVFCU cannot give Good the money he needs for his business. The bitter irony: the credit union could, however, loan him money to buy matching Corvettes, but they can’t help him with a needed business loan.
Sandberg said ParkView’s average MBL is $70,000.
“There is a huge demand for loans that size. We’ve had members asking for those loans who were rejected by banks.”
The business owners see the credit union as their partner, and the cap limits Park View’s ability to be a partner in the future.
“Member business lending hasn’t been a high-risk activity for us. We have relationships and even in bad times we can help our business owners push through.” He said that turning down members for business loans because of the cap “can be a confidence killer” with the member.
DuPont Community is only halfway at the cap, but is already hampered by the limitation. The cap limits the flow of capital into the marketplace and prevents the credit union from investing in the infrastructure to operate a robust member business lending program.
“It’s like starting a business and saying you can take it only so far,” Steve Elkins said. And at 50% capacity, DuPont doesn’t want to do participation loans because that would mean denying local businesses capital. “We want to be good community stewards,” he said.
The government’s limit on member lending “doesn’t make sense.” What’s more risky, $75,000 on an excavator or a mortgage? “You can get way over your head on mortgages,” Barry Smith noted. But the government is steering credit unions into making an $800,000 loan on a house, instead of a loan on a business.
He also argued that the cap has to be raised to take into account the current price on equipment. A pickup truck for a business runs $40,000, he noted.
Said Elkins: “We should be able to look at larger loans based on our capital.”
DuPont also has helped its business members tide themselves over during the recent hard economic times. A small animal clinic was considering laying off employees, but the credit union restructured the debt to save jobs. “It pains us to be painted (by the bankers) as not being good at member business lending,” Elkins said.
Smith added that currently he’s working with a business owner whose bank loan is due for re-pricing, and his bank isn’t calling him about it. The businessman came to DuPont for help. “We’ll step in. He still hasn’t heard from his bank.”
Elkins, a former banking consultant, said, “What we do and how we do it is not inferior to the banks. I enjoy this business model.”
Elkins maintained that the cap is the reason why more credit unions aren’t in member business lending.
Get involved: Write Sens. Webb and Warner about Senate Bill 2231 and ask them to support this measure that would lead to more jobs!