Small Business Focused Finance
Alabama credit unions are fine-tuning their small business relationships, mentoring clients and increasing loan portfolios.
ABOVE When Amanda Bender wanted to rebrand and revamp her RedX Fitness in Decatur, she turned to Alabama Credit Union, working with Commercial Loan Officer John Edington.
When Amanda Bender, owner of RedX Fitness, decided to rebrand her business, she also wanted to refinance one of her three facilities, a 33,000-square-foot building on 10 acres in Decatur.
She had originally financed the business about a dozen years ago with a Small Business Administration (SBA) loan through a conventional bank, Bender says.
“I was looking at another SBA loan,” she says, “but the fees are very high.”
Then a customer told her about the credit union where he worked.
“One of my members got hired on at Alabama Credit Union, and he knew I was looking to do some things financially,” says Bender. “He talked to me about the different [loan] options that I didn’t even know were available through the credit union.”
She says that within a couple of months after applying for a loan, Alabama Credit Union approved her request for $3 million, the full amount she needed to refinance the fitness center.
“The biggest thing for me was that my [credit union] banker was very hands on,” says Bender. “I didn’t have to wait forever for an answer. He was able to get me an answer fairly quickly, because I had a decision to make and a timeline I had to meet.”
A growing number of small businesses like RedX Fitness are turning from traditional banks to credit unions for financing. In fact, the National Credit Union Administration (NCUA) reports that outstanding business loans by credit unions rose from $11.5 billion in 2007 to $28.5 billion by the second quarter of 2017. And that was up from the $23.2 billion recorded by the fourth quarter of 2016.
Unlike traditional banks that seek profits for their shareholders, credit unions are not-for-profit organizations in which the customers or “members” of a credit union are, in effect, joint owners.
NCUA reports that overall membership in federally insured credit unions grew from 88.6 million members in 2008 to 111.3 million by the fourth quarter of 2017.
And, whereas, credit unions have traditionally restricted their membership to people in certain professions or geographic areas, NCUA recently loosened some of the restrictions.
Moreover, besides lending, other performance indicators for credit unions are rising. For example, the total assets for credit unions in the fourth quarter of 2017 reached $1.37 trillion, up 6.7 percent from the same period in 2016, and the net income for credit unions reached $10.4 billion at an annual rate in the fourth quarter of 2017, up 9.2 percent from the same period in 2016.
Alabama is home to some 118 credit unions with an estimated $19 billion in assets and 1.9 million members, according to the advocacy group League of Southeastern Credit Unions & Affiliates (LSCU & Affiliates).
Additionally, the LSCU & Affiliates reports that member business lending by Alabama credit unions rose from $610 million at the end of 2016 to $653 million by the second quarter of 2017.
The Tuscaloosa-based Alabama Credit Union is one of the state’s largest, with assets of nearly $738 million as of the third quarter of 2016. The credit union has approximately $47 million outstanding in member business loans. In addition, the credit union approves more than 80 percent of the loan applications that they review, Commercial Loan Officer John Edington says.
Alabama Credit Union’s small business customers typically seek loans for building and property purchases, commercial property, equipment and company vehicles purchases, Edington says. The credit union also issues credit cards for its small business customers.
“We take very seriously that we’re lending our members money,” says Edington. “The approval process encourages discussion with all involved in the process, as we look for the best way to approach a credit request. We look at cash flow, capital and credit history as the pillars, to making sure we understand the credit risk and viable sources of repayment.”
The interest rates vary, says Edington, depending on the type and term of the credit request. “There’s flexibility within the approval process in structuring the deal to meet the members’ needs while protecting Alabama Credit Union.”
The largest credit union in Alabama in terms of assets is Redstone Federal Credit Union, based in Huntsville. By the third quarter of 2016, the financial institution, with 26 branches, had more than $4 billion in assets.
Joe Newberry, Redstone’s president and CEO, says the institution’s primary business member is an owner-managed business with up to 10 employees and annual sales of less than $10 million in manufacturing, real estate investment, professional services, or nonprofit and religious organizations. Many of their business members are subcontractors and small business owners whose clients include the U.S. Department of Defense and NASA.
Small business lending represents about five percent of Redstone’s total loans, Newberry says, and the credit union offers loan options that include lines of credit, term loans and commercial real estate loans. In addition, Redstone administers SBA-enhanced loans.
“We provide financing for working capital, equipment and real estate construction, improvement and refinance,” says Newberry, “and we participate in various SBA programs like 504, 7a and Express when applicable. We have financed construction projects as large as $25 million and as small as $100,000.”
In 2017, Redstone’s business loan approval rate hovered around 65 percent, Newberry says. In the years prior to that, however, the approval rate was as low as 33 percent.
“The improvement is due to our getting better at mentoring the members who come to us for loans,” says Newberry. “If they’re not ready, we give them a list of things that will make them more likely to gain approval.”
Among Redstone’s small business customers is Eric Wharton, who owns Madison Collision Center, an auto collision repair shop in Madison County. He took over the business from his father, the founder, five years ago, he says.
Not long after that, Wharton says one of Redstone’s commercial bankers, active in the local business chamber, approached him about joining the credit union. Wharton says he liked what he heard and made the switch to Redstone, opening a line of credit and obtaining a business credit card.
“The credit union is just great,” he says. “I’ve been to other banks before, but the credit union is just the way to go. They have bent over backwards to help me. They’re informative. They respect my commercial account. Occasionally someone from their commercial unit will come into the office and say, ‘Hi,’ or take me to lunch, and that’s very important. When you have as much money going through the account as we do, it’s nice to be appreciated sometimes and not just walk up to a counter every time you need them, and that’s as personal as it gets.”
Wharton has two shops. But when it became clear that he needed to replace his 8,000-square-foot shop with a larger one, he applied for and got a loan from Redstone for just over $1.2 million, he says.
Today, he is building the new shop that is set to open by early summer, he says.
“This is my first ever new build,” says Wharton, “and they have kept me educated the whole time. If I have questions, I don’t have just one commercial banker. I have four or five, and at any time I can just call any of them.”
The new shop, he says, will be just under 12,000 square feet and approximately five lots away from his old shop.
“The parking lot is going to be triple the size, which is a big deal,” he says.
In Dothan, Five Star Credit Union focuses on small rather than large business customers in small to midsize towns around south Alabama and Georgia. The financial institution had about $385 million in assets as of the fourth quarter of 2016.
“Most of our member business loans are for our members who are looking to expand their business,” says Mike McDonald, Five Star’s chief lending officer.
“With the economy doing so well, we’re seeing more of our members moving from renting or leasing to purchasing the buildings they occupy. This allows them to build capital in their business.”
“Also,” says McDonald, “many companies are seeing a bright outlook for the next three to five years, so they’re investing in new equipment.”
McDonald says that because Five Star’s focus is on the small business owner and not the large corporation, it has made a difference in their approach to customer service.
“It’s much more personal,” McDonald says.
Gail Allyn Short and David Higginbotham are freelance contributors to Business Alabama. Short is based in Birmingham and Higginbotham in Decatur.