Credit unions have historically been consumer-oriented organizations. Originally founded to serve specific segments of the population (e.g., teachers, firefighters, etc.), they have largely remained outside the broader domain of commercial lending, although they have written loans for smaller businesses over the years.
That may be changing. Earlier this month, Minnesota’s four largest credit unions announced plans to “team up” to offer a wider range of commercial lending services. The goal is to chase bigger jobs for which they do not have the resources to solve on their own. The four credit unions involved are Affiniti Plus, Hivai, Spire and TopLine Federal. They called the effort United Financials Capital LLC.
Many other credit unions in the country are obviously eager to jump into the space for corporate lending. Dan Stoltz, CEO of Spire, says he has sent inquiries from 10 other credit unions that want to join the effort. For now, four partners are not allowing others to enter, but Stoltz says they are keeping a list of those who have expressed interest.
Stoltz says the “sweet spot” is loans ranging from $ 5 million to $ 50 million. Potential borrowers may include developers, government entities, or other infrastructure builders.
“In this niche of lending, we’re just giving the market another option,” says Stoltz. “It’s unique, and I’ll call it refreshing, when financial institutions work together and seek some common victories.”
Stolz says the four credit unions have weighed in on several potential partnerships “for quite some time”. They considered joining forces on legal services, IT platforms, and even human resources systems. Michael Dalglish, a veterinarian in the financial industry in the area of the twin cities, gathered them on behalf of commercial lending, says Stolc.
Business files with the Secretary of State of Minnesota show that Dalglish founded United Financials Capital in March 2020. That effort was formally launched in January this year, says Dalglish.
Dalglish sees this venture as a way to fill a much-needed gap in service offerings for the four credit unions.
“We want to serve our members who are currently banking with our organizations seeking these types of services,” says Dalglish, who now serves as CEO of United Financials Capital. “It’s nice to be able to say ‘yes’ to them. We have a chance. ”
Dalglish says the organization has closed some loans, but it is too early to make them public.
The banking authorities have officially recognized United Financials Capital as the organization for providing services to credit unions or CUSO.
This venture may be suitable for credit union members who are more business-oriented, but what about the average consumer? The Spire chair predicts that the effort will not have any negative implications for existing members. If nothing else, he says, it could have a “lowering” effect.
“I would say that the indirect benefit for consumers would be in helping these companies to be more successful and competitive,” which could translate into lower rates for consumers, says Stolc. “But I would say that it is mostly a business benefit that, we hope, goes down to the consumer.
The National Credit Union Authority (NCUA), the U.S. government’s regulatory branch for credit unions, has given its blessing. “They had to delete our rules and reasons for gathering - all things that would be regulatory concerns,” says Stoltz.
Banks are closely monitoring
Credit unions have certainly begun to think more like banks in recent years. Michael Iselin, a professor of accounting at U of M’s Carlson School of Management, who researched financial institutions, says the development is in line with the recent efforts of many credit unions to seek larger business deals.
“There has been a growth trend in the last five or six years when credit unions are buying banks,” says Iselin. “One of the primary reasons for this type of activity is to enter into business lending, but also to acquire expertise [the banks’] employees. “This agreement is another way in which credit unions are trying to expand their business from consumer lending activities - which is their bread and butter and the reason for their existence for a long time - to the commercial loan markets.”
Of course, this type of movement has not always been well accepted among banks, which have long had a problem with the tax exemption status of credit unions. Iselin says the new partnership is likely to “raise the eyebrows of banks”, which could see credit unions have an unfair advantage.
However, from a competition point of view, the emergence of United Financials Capital does not appear to be an immediate concern. “I don’t see any anti-competitive effects,” Iselin said. “As far as I understand, they will not cooperate and agree on their current products. … At the moment, the plan is just to work together to develop in-road in this larger corporate credit space where they currently have no footprint. ”