Financial Affairs

New Company Adapts Commercial Lending Services to Small Credit Unions

PORTAGE – In the past, First united credit union would consider taking out a business loan when asked about it by a member.

Now, after signing last year with a Portage business, the small Grandville credit union is taking a slightly more proactive approach to business loans to members.

Kenny Leonard, Element 22 Business Group

Item 22 Commercial Group LLC gives the credit union access to “a ton of expertise” needed to review, analyze and underwrite the credit applications of members who own a small business, said Mark Richter, President and CEO of First United.

“Our credit union can’t afford to hire guys like that and have them on our staff,” Richter said. “Their business model is excellent for us”.

Under this model, Element 22 Commercial Group essentially acts as a contractual commercial lending arm for small credit unions.

Since partners Kenny Leonard and Ryan Reffitt formed the company in 2018, Element 22 Commercial Group has worked or is working with 15 credit unions, primarily in western and northern Michigan. The company is looking to work with small credit unions and community banks that “don’t have the resources or the expertise to make commercial loans,” Leonard said.

“Every day they bring people in and say, ‘Hey, do you do business loans? And they just don’t, and they didn’t have a place to send them. Now instead of turning it down, they send it to us and we can work on their behalf, ”Leonard said. “There just aren’t many test beds for commercial lenders or underwriters left. We believe our model helps solve this problem. We can find the business and we can do the underwriting.

Credit unions with $ 300 million in assets or less represent the company’s “sweet spot”, although Element 22 Commercial Group works with credit unions that are much larger, he said. .

Leonard and Reffitt are both seasoned commercial lenders in the market. They formed Element 22 Commercial Group as commercial loans from credit unions continue to rise.

At the end of the third quarter of last year, the most recent period for which data is available, Michigan credit union commercial loans were up 23% from the previous year, according to a report. Michigan Credit Union League Quarterly.

The partners aim to enable more credit unions to engage in commercial lending.

“The credit union industry as a whole is starting to gain notoriety in commercial lending and business lending, but it has not historically been known as sophisticated, particularly with respect to commercial and commercial lending.” , Leonard said. “The industry as a whole is starting to overcome this. ”

Until February, the company had worked on a dozen commercial loans for credit unions totaling $ 4 million. Element 22 also has a brokerage firm that helps businesses get financing. The company has worked on a $ 9 million financing for clients who are in various stages.

The partners’ business plan was to manage approximately $ 1 million in commercial loans per month by 2020. The company surpassed that amount in February and March and is on track to do the same in April, although it remains “A bit in the start-up phase. “Leonardo said.

Element 22 Commercial Group can handle all commercial loan processes “from start to finish for some of the clients who are very small institutions”, or elements of a loan such as preparing closing documents, structuring and taking out a loan, and servicing a portfolio loan.

Marshall Community Credit Union has been lending to businesses for over a decade and uses the company for underwriting, document preparation, closing file preparation, as well as reviewing lending processes, pricing policies and strategies, said CEO Heather Luciani.

The credit union, with assets of $ 200.3 million, has offices in Marshall, Battle Creek and plans to open a location in Coldwater.

Element 22 Commercial Group offered a “fresh perspective” and helped streamline and customize the business lending process based on the size of loan application and type of borrower, rather than using a one-size-fits-all approach. , Luciani said.

“It allows us, for our business lending line of operations, to rethink the way we do things and make sure it still makes sense. Sometimes you get into a rut. “That’s how we’ve always done it. “That doesn’t mean it’s always the best way to do it,” she said. “It helps us go from ‘This is how the process works’ to ‘This is how the process should work for this business owner.’ ”

Element 22 Commercial Group may also work with a credit union on board policies and procedures and will tailor business loans based on the credit union’s risk profile “to ensure that what they want to do is what with whatever they’re comfortable with, ”Leonard said.

The final decisions on whether or not to approve a business loan rest with individual credit unions.

“Each institution has its own tolerance for risk,” Leonard said. “We will certainly advise them on the risks associated with every decision they make, but ultimately we firmly believe in putting the power in their hands. They know their customers, they know their market. We can help them more in terms of structure and risk mitigation, but it really depends on them.

At First United, Element 22 Commercial Group initially performed an analysis of the credit union’s products and services and their alignment with the competition, and helped prepare marketing materials, Richter said. The company has helped First United, which operates a single office in Grandville and had $ 37.5 million in assets at the end of 2018, close deals and take out business loans, he said.

First United makes about a dozen loans per year to member small business owners, many of which fall below the $ 50,000 threshold to be considered business loans in federal regulatory reports. By using Element 22 Commercial Group, the credit now aims to do more and promote commercial lending to members, Richter said.

“We’re just trying to take care of the existing members that we have and not to go too fast, too much,” he said. “When you have a partner that you are comfortable with, you are more willing to make deals. “