There are a variety of reasons why five Michigan credit unions ranging from $186 million to $764 million in assets decided to join resources and create the Michigan Business Connections CUSO. Their complimentary interests are an example of the benefits of partnering to achieve business lending success.
Although each of the founding members of the CUSO considered launching a business lending program on their own, the costs and resources required made it prohibitive. Over a number of conversations the executives begin to realize that a CUSO could help overcome these barriers to entry. “We started discussing the various aspects of the proposal and realized that the idea was feasible since we knew each other and have strong working relationships,” said Bill Theiss, CEO of Detroit Edison. The five credit unions are geographically dispersed throughout Michigan and do not have a significant conflict of interest amongst their membership bodies.
It became evident how each believed that the CUSO could help them not only offer much-needed business lending services to their members, but also create an effective back and front office system to underwrite and service the loans, assist with loan participations between institutions, and even generate new business leads.
Each credit union placed the same initial investment into the CUSO after seeking their respective board’s approval in late 2004. The dollar figure was close to one-fifth of what it would cost if each of the credit unions decided to start an in-house program. Further, additional investment has not been needed. “Our initial forecast was for the CUSO to be operationally profitable by 2006,” says Theiss “but it may be possible by the end of 2005.”
“We rely on the CUSO for the expertise to make the underwriting and credit decisions,” said Larry Knoll, CEO of Midwest Financial. Once approved, each credit union has the flexibility to keep the entire business loan on its books or participate out a portion or all of it to the partner credit unions.
Detroit Edison Credit Union ($498 million in assets, Detroit, MI)
Detroit Edison is a single sponsor credit union that services the current and former employees and families of the Detroit Edison Company. Because it is one of the larger credit unions in the CUSO, it has been more involved in loan participations. “I don’t know how much business we will originate within our existing field of membership, but we are in a position to help fund business loans from our partner credit unions,” said Theiss. The other credit unions in the CUSO are more focused on developing sales leads and relationships.
Midwest Financial Credit Union ($187 million in assets, Ann Arbor, MI)
Midwest Financial has a significant base of entrepreneurs in its multi-SEG field of membership and has had several members inquiring about business services. The CUSO arrangement has made it feasible for the credit union to engage in business lending from both an operational as well as financial standpoint. “The CUSO helps us promote the program to our members; however, we also have a separate business development department that builds and strengthens small business relationships,” said Knoll.
Christian Financial Credit Union ($194 million in assets, Roseville, MI)
Christian Financial had an existing business lending program in place before joining the CUSO. “It was hit or miss because of the documentation and due diligence requirements,” said CEO Roger Quitter. “We also could not justify the expenses because our best case scenario was to break even on the lending side due to the business lending cap and make a small return on the deposits side.” Christian Financial actively pursues small business relationships and likes that it has the option to participate out its loans to other credit unions in the CUSO.