Author Archives: Joy Audet

About Joy Audet

Joy Audet is political communications coordinator for the Arizona Credit Union League & Affiliates.

Credit Unions Big Boose to Small Business - AZ Business Magazine September/October 2011

Credit Unions Could Be A Big Boost To Small Business

Every week while driving to work I notice an increasing number of empty store fronts. A local restaurant, boutique or consulting firm that was there last week, is no longer there today. It makes me wonder how many of those local small businesses could have survived had they applied and been approved for a small business loan at credit unions.

According to the Arizona Small Business Association, there were just about 381,000 small businesses in Arizona in 2008. Think about how many more small businesses there could be if Arizona’s 49 credit unions had the ability to increase their business lending and offer new business loans.

Think about how many jobs that could create. Now think about the potential positive impact that could have on our economy.

Eighteen Arizona credit unions, about a third in the state, provide member business loans.

However, the current statutory cap is set at 12.25 percent of assets.

Many credit unions have refrained from entering the business lending arena because the 12.25 percent cap prevents them from earning sufficient income to cover the cost of starting up and maintaining a business lending portfolio.

Legislation in the Senate, S 509, has been introduced by Sens. Mark Udall  (D-Colo.), Olympia Snowe (R-Maine) and Charles Schumer (D-N.Y.);  and on the House side, HR 1418 introduced by Reps. Ed Royce (R-Calif.) and Carolyn McCarthy (D-N.Y.). If passed, both bills would increase the business lending cap to 27.5 percent of current assets.

If enacted, legislation raising the current statutory cap of credit union small business lending (from the current 12.25 percent of assets to 27.5 percent of assets) could result in $13 billion in new lending and 140,000 new jobs in just the first year nationwide and $144 million in new lending and 1,600 new jobs in Arizona, according to Credit Union National Association estimates.

“We hear from business owners all the time that have solid plans and want to grow, but the big banks won’t even talk to them,” says Paul B. Stull, senior vice president Strategy & Brand for Arizona State Credit Union. “Increasing credit unions ability to lend to these businesses is needed now more than ever. We can get the economy moving again, but the current economic gridlock is holding us back.

“Local financial institutions, like credit unions, know our markets very well. We understand Arizona and we know how to make Arizona loans for Arizona people.”

The unique benefit to this legislation is no U.S. taxpayer dollars would be needed; nor would any new government programs need to be created.

When other lenders pulled back during the financial crisis, credit unions stepped up to the plate and continued to lend. And even though credit unions are the only financial institution imposed with a statutory cap, member business loans have grown 3 percent in Arizona over the past year, compared with other financial institutions which have decreased an average of 7 percent. Many credit unions, however, may soon be approaching the statutory cap of 12.25 percent of current assets.

The average credit union small business loan in Arizona is $220,000; these are indeed loans to small businesses. With so many local small businesses struggling, these loans are increasingly necessary to support our local economy so it can once again thrive.

With less than 2 percent of the market, it’s important to note that credit unions pose no threat to commercial banks. Small businesses are often turned away from commercial banks because they are too small. This is where credit unions have the ability to fill in the gap.

Credit unions have a long history and good track record with their members of making small business loans, and making them prudently.

Since 1997 the net charge off rate for credit union small business loans in Arizona has been roughly one-fourth the average of other financial institutions (0.23 percent vs. 0.93 percent), and in 2011 averaged 70 percent of other financial institutions (0.91 percent vs. 1.29 percent).

Treasury, Obama Administration and our federal regulator, the National Credit Union Administration, are all in favor of this legislation.  Those standing in the way are only impeding a path to sustain the growth of local economies by supporting small businesses and the jobs that they bring to our communities.

“Arizona needs jobs, businesses need loans to grow and now is the time for Congress to increase credit unions ability to meet those needs,” Stull says. “This is a quick fix to create jobs at no cost to the taxpayer. We are asking Congress to prove their commitment to growing jobs and this is one piece of legislation that does just that.”

For more information about credit unions, visit www.azstcu.org.

 

Arizona Business Magazine September/October 2011

Make Larger Loans To Small Businesses - AZ Business Magazine Sept/Oct 2010

Arizona’s Credit Unions Want To Make Larger Loans To Small Businesses

As lending opportunities for small businesses throughout Arizona continue to tighten, legislation has been moving through Congress that would enable Arizona’s credit unions to make more loans to small businesses. The media is filled with reports about how small businesses are having trouble gaining access to affordable credit. Credit unions did not take TARP money during the financial crisis, and they can help small businesses create jobs and jumpstart the economy, all at no cost to the taxpayer. This is inconsistent with additional proposals that would give added TARP money to the for-profit banks in order to stimulate small-business lending.

Many local credit unions stand ready to help. But unlike banks, credit unions are constrained by an arbitrary cap that, under current law, limits the amount of small business loans they can make to 12.25 percent of total assets. The Senate is currently debating legislation introduced in the House, the Small Business Lending Fund Act, and Sen. Mark Udall (D-Colo.) has offered a proposed bipartisan amendment to the bill that would raise the business lending cap on credit unions from 12.25 percent of assets to 27.5 percent.

Upholding credit unions’ history of prudent and responsible lending, the credit union would need to meet certain criteria and be approved by the National Credit Union Administration to lend in excess of the current 12.25 percent cap. A credit union would have to be well capitalized (above 7 percent); at or above 80 percent of the current business lending cap for one year before applying; have five or more years of business-lending experience; have a history of strong underwriting and servicing of business loans; and have strong management, an adequate capacity to lend and policies to manage increased business loans. This amendment also includes provisions that would protect the National Credit Union Share Insurance Fund. The Treasury Department also sent a similar proposal to Congress earlier this year.

If the credit union member business lending cap were raised from 12.25 percent to 27.5 percent of assets, the estimated increase of small business loans would be $10 billion in the first year, leading to the creation of 108,000 new jobs, according to estimates from the Credit Union National Association. More than 1,600 of those jobs would be created here in Arizona. Just as important, this arbitrary lending cap increase would come at no cost to the U.S. taxpayer.

Small business is the cornerstone of our community and the key to increasing jobs and economic recovery. The additional lending authority would enable credit unions to do more of what they do best — make safe-and-sound loans to members. In this case, to members who are looking to start or expand a small business in Arizona.

As member-owned, not-for-profit, cooperative financial institutions, supporting local business is natural, and oftentimes, members are seeking a business loan that is too small for banks. The average size of a credit union small business loan in Arizona is only about $240,000, and Arizona credit unions maintain only about 2.6 percent of the local business lending market share.

A well-run member business lending program has the potential to bring a great amount of success to the community. First and foremost, the member businesses have another lending option, allowing them a chance to succeed with the right loan. However, a member business lending program requires personnel and resources. With a cap that is as low as 12.25 percent, many credit unions find the cap too restrictive to offer business loans.

With more capacity to make small business loans, credit unions throughout Arizona can do more to help spur the creation of new jobs, and help accelerate our nation’s economic recovery.

Arizona Credit Unions
Currently Offering Member Business Loans

  • Arizona Federal
  • Arizona Heritage Credit Union
  • Arizona State Credit Union
  • AEA Federal Credit Union
  • Continental Federal Credit Union
  • Credit Union West
  • Arizona Central Credit Union
  • First Credit Union
  • Tempe School Credit Union
  • Tombstone Federal Credit Union
  • Desert Schools Federal Credit Union
  • Vantage West Credit Union
  • TruWest Credit Union
  • Tucson Federal Credit Union

Austin De Bey also contributed to this article.  He is vice president of governmental affairs for the Arizona Credit Union League & Affiliates, www.azcreditunions.coop.

Arizona Business Magazine Sept/Oct 2010

Arizona’s Credit Unions Are Helping - AZ Business Magazune Sept/Oct 2010

Arizona’s Credit Unions Are Helping Those Who Depended On Payday Loans

With Arizona’s payday loan industry now history, the state’s credit unions are jumping into the resulting void to both help consumers and gain new members.

Called REAL Solutions, the Arizona Credit Union League & Affiliates’ new program offers an option for consumers who depended on the short-term loans made by the payday loan industry. But in proverbial teach-to-fish fashion, REAL Solutions also aims to help those consumers build long-term financial security.

One service provided by REAL Solutions is a small dollar emergency loan, which allows credit union members to get short-term loans at lower interest-rates than normal payday lenders would offer.

The average payday loan was typically for 14 to 30 days, and the fees varied between $15 and $20 per $100 borrowed. Under this model, a 14-day loan could carry an APR of 520 percent. With REAL Solutions, interest rates vary by credit union, with rates starting as low as 12 percent.

While these loans are an option for consumers, they are not the solution to borrowers who relied heavily on payday loans. However, credit union loans can benefit the borrower in ways that payday loans cannot. If repaid on schedule, the short-term loans can build the borrower’s credit score, because payments to credit unions are reported to credit bureaus, while most payday loans are not. Credit building allows borrowers to obtain better interest rates and terms on their next loan products.

Some credit unions also will put a portion of the loan repayment in a savings account if paid on time. The amount is small, but normally will cover the fee involved in setting up the loan.

Because borrowers can easily fall into a debt trap with payday loans, credit unions only provide members with the opportunity to have one of these short-term loans at a time. This keeps the borrower from getting into a never-ending cycle of taking out a loan to pay off another loan.

Two additional components of the REAL Solutions program are low-interest credit cards and member-rewards programs.

Low-interest credit cards help members gain financial stability. These credit cards are designed to be less of a financial burden on the cardholder by keeping interest rates lower than normal cards.

Credit union members also can enroll in a member-rewards point program, which is similar to a credit card rewards program. The member receives a point for every dollar paid in interest, as well as incentive-based points for continued membership, referring new members or utilizing member-friendly services such as online bill pay. The members can use the points they accumulate for items such as discounted loan rates or even to waive fees they have incurred.

The Arizona Credit Union League realizes that education is the key to financial stability and freedom. Proper financial education on budgeting, debt management, identity theft prevention, building credit, home buying, retirement savings and buying a car are key to being financially empowered.

REAL Solutions includes such benefits as:

  • Second chance checking
  • Member rewards
  • Credit building loan programs
  • Free financial education (for all stages of life)
  • Short-term, small-dollar emergency loans
  • Credit building credit card programs
  • Reloadable prepaid debit cards
  • Low-cost personal loans
  • Overdraft protection
  • IDAs (Individual Development Accounts)
  • ID theft/fraud services
  • Holiday loan skip pay

Each REAL Solutions Credit Union provides independent programs and services. Names of services and programs may vary depending on the credit union.

Arizona credit unions participating in REAL Solutions:

  • AEA FCU
  • Alhambra CU
  • Altier CU
  • American Southwest CU
  • Arizona Central CU
  • Arizona Federal CU
  • Bashas’ Associates FCU
  • Canyon State CU
  • Credit Union West
  • Desert Medical FCU
  • Desert Schools FCU
  • First Credit Union
  • Hughes FCU
  • MariSol FCU
  • Mohave Community FCU
  • Pima FCU
  • Pyramid CU
  • Southwest Health Care CU
  • Tempe Schools CU
  • TruWest CU
  • Tucson Federal CU
  • Tucson Telco FCU
  • Vantage West CU

Austin De Bey also contributed to this article.  He is vice president of governmental affairs for the Arizona Credit Union League & Affiliates. For more information about the REAL Solutions program and the credit unions that offer it, visit the Arizona Credit Union League website at www.azcreditunions.coop.

Arizona Business Magazine Sept/Oct 2010