Credit unions find niche in small business loans

Measured by dollars loaned, Coastway Credit Union was the No. 1 U.S. Small Business Administration lender in Rhode Island last year, and the No. 1 credit union in the country, with $18.6 million loaned to small businesses in the fiscal year that ended Sept. 30.

“We actually lent more dollars last year than Citizens Bank,” said Bill White, president and CEO of the 135-employee credit union, which is based in Cranston.

Citizens Bank of Rhode Island is still ranked No. 1 in the state when measured by number of SBA-backed loans awarded last year with 319, but Coastway’s 61 loans through the SBA’s 7(a) and 504 loan programs were worth $4.5 million more than Citizens’.

No other Rhode Island credit union came close to Coastway in terms of SBA lending, although Westerly Community Credit Union did rank No. 7 by number of loans, 28 worth $1.3 million.

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Still, Coastway is not alone. More and more credit unions are realizing the potential of that market.

“It gives us another whole line of business to rely on,” White said. “When times are slow in our mortgage or car loan areas, we have this.”

The credit union started commercial lending in 1995, with “the smallest of the small” commercial loans, he said. Then, as the credit union built up referral sources and people started recognizing the work it was doing, the loans got bigger and bigger. And they became more frequent.

Now, the credit union can handle commercial loans of $3 million to $4 million, though most are less than $1 million, White said. Coastway’s total commercial loan portfolio is about $65 million. SBA-backed loans represent about 30 percent of the portfolio.

In addition, the SBA Rhode Island district office last month gave Russell Gaston, vice president and commercial lending manager at Coastway, a Financial Services Champion of the Year award for growing his own small business loan portfolio from $5 million to $60 million during the last four years. (Not all loans were SBA-backed.)

White said Gaston’s success is a reflection of his expertise in commercial lending as well as the dedication of the whole small business lending staff.

The staff is what attracted Precision Craft Dental Laboratory Inc. to switch from Citizens to Coastway, said Joann Faella, spokeswoman for the Smithfield dental prosthetics manufacturer.

Precision Craft also got a superior interest rate from Coastway through an SBA 504 loan, which it used for the construction of a new 15,000-square-foot facility that was completed in March, she said.

“It was a $3.5 million project,” she said. “We wanted an [interest] rate where it’s supposed to be. It makes a huge difference.”

Mike Lynch, vice president of lending for Westerly Community Credit Union, also recognizes the profitable niche that small business lending creates for credit unions.

“The whole credit union industry sees a market out there … for serving the underserved” in commercial lending, he said. “Our niche is the smaller mom-and-pops that are underserved by the larger banks.”

And though most of the credit union’s commercial loans range from $25,000 to $120,000, it more recently has been handling loans in the $750,000 range. As at Coastway, as the credit union’s experience have increased, so have the size and number of the loans.

Westerly Community Credit Union’s total commercial lending portfolio is smaller than Coastway’s, about $18 million. And the credit union’s total assets are $177 million, about $111 million less than Coastway’s.

Nevertheless, commercial lending is “one of our main focuses here at the credit union,” Lynch said. And it’s one that Westerly Community Credit Union hopes to grow, as does Coastway.

“We’re going to continue to develop this as a specialization,” White said. “We see no reason to back off. … We offer very personal service and a quick turnaround. … [Gaston’s award] validates what we’ve accomplished.”

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