In 2004, when several Michigan credit unions came up with the idea of forming Michigan Business Connection LC, a CUSO that would help diversify risk and provide an outlet for managing the 12.25% cap, Christian Financial was a willing partner. The timing of MBC's launch could not have come sooner. The credit union had just applied to NCUA for a waiver. Campbell said federal regulations only permit waivers to exclude non-member business loans from the calculation. Christian Financial wrote a waiver for up to 10% of assets for non-member business loans and asked that it not count toward the cap. NCUA turned down the request but did approve $10 million.

"We have a loan limit of $500,000. If we couldn't sell [loans to other credit unions], we would not be able to do commercial lending," Campbell said, adding the credit union is currently encroaching on the $10 million waiver and may have to go back to NCUA for another one.

Having been in the financial services industry for 20 years, including starting her career auditing thrifts during the height of the savings and loans collapse in the 1980s, Campbell said she understands the need for regulatory guidance and limits but within reason.

"When thrifts had their margins compressed, they decided to do commercial lending. They did a lot of loans that were probably not underwritten to the right standards."

With that said, Campbell firmly believes that the absence of regulations "put risks into [the commercial lending model]" but she questions the need for a 12.25% limit. If a credit union has a solid program, a good track record and experienced staff, expanded waivers would be more important than increasing the current member business lending limit.

"Twenty percent is good number," Campbell said of several pieces of credit union legislation to raise the member business lending cap. "But [NCUA regulation] 723 needs to be expanded to allow for waivers. To me, it doesn't make sense to allow waivers for just non-members. We want to serve our members and here you have people you don't know intimately."

Christian Financial isn't looking to drum up business outside of its existing membership because the cap limit prevents the credit union from doing so, Campbell said. Besides, with the financial institution currently serving 600 businesses, "we're not looking for new opportunities."

As another way to diversify risk, Campbell said she likes to see a balance between commercial, residential, and consumer loans. As an SBA lender with $2 million in its guaranteed loan coffer and a participant in a state capital access program, Christian Financial turns to these outlets to make loans that may not be doable or "prudent" without additional support.

Many of the credit union's business members are long-time relationships. Businesses range from florists, machine shops and restaurants to bowling alleys and multi-family housing developments. The $10 million loan to a flower shop is Christian Financial's oldest loan. And of course, there are loans to churches.

"Because we have a breadth of businesses, it reduces risks," Campbell said, adding it tries to stand out from competitors by not offering prepayment penalties on loans and making loan decisions locally. "Members like that and it also helps us to understand the loan and the applicant more."

In addition to expanding waiver guidelines, Campbell said she would like to see some relief with commercial mortgages. For instance, banks are not required to do appraisals but credit unions are. The credit union is "pretty okay" with unsecured limits and based on the Christian Financial's asset size, it would not want to go over those limits anyway, she explained. The 80% limit on commercial vehicles, however, is very restrictive.

"We lose business to the GMACs of the world because we only finance 80% of commercial vehicles but they can do 100% financing all day long," Campbell said.

For credit unions considering an entry into commercial lending, Campbell is a proponent of the CUSO model but in the same breath, cautions them on buying loans that they don't know anything about in other states.

The Credit Union Regulatory Improvements Act (H.R. 1537), with its ebbs and flows, is still pushing to move the 12.25% cap increase to 20% forward but Campbell reiterated that waiver expansion is probably more critical.

"We keep coming up to that 12.25% cap," Campbell said. "That's okay but it just means that we need to roll up our sleeves and apply for that waiver. And, we're okay with showing that we're competent and we have a strong [commercial lending] program."

–[email protected]