New Business CUSO Expands Into Smaller Loans

A Philadelphia-area business lending CUSO launched a new subsidiary Thursday designed to provide small loans to feed the growth of successful companies without relying on real estate collateral.

Member Business Financial Services of Trevose, Penn., has created Nu Direction Lending, LLC, with the help of a fintech that will enable it to offer business owners the ability to apply online or with their mobile devices for loans usually considered too small or too complex for credit unions to handle, MBFS CEO Mark Ritter said.

A successful business on the road to expansion often discovers a dead end when reaching out to credit unions for a loan, Ritter said.

“If you call into a credit union and say you need $75,000 to open a new location in a leased center, there are not a lot of good solutions out there for people,” Ritter said. “However, if you call in to say you need $1 million to buy an office building, there are credit unions lined up to do those.”

Ritter said the launch will be slow, with about 10 loans a month at the start to test the system and work out kinks in the process. Within two years, he said he expects it to be producing $45 million to $50 million in loans per year.

Nu Direction Lending will be supported by the MBFS staff and infrastructure. It has also hired Tammy Baker as vice president of fintech lending.

A partnership with Credibility Capital, a fintech business lender based in Newark, N.J., will provide Nu Direction Lending the ability to offer an online and mobile application process plus sophisticated underwriting tailored for non-real-estate-backed loans.

Credibility Capital has developed a platform that has served businesses with averages of $3 million in revenue, 13 years in business and owner FICO scores of 728.

The system for Nu Direction Lending will blend automated underwriting with a dedicated loan manager and manual checks on aspects of the business that need further support. Nu Direction Lending’s plan is to compete on speed and reliability for creditworthy loans from $25,000 to $250,000 with terms of one to three years.

Credit unions outside the MBFS CUSO can earn referral fees or invest in loan participations.

Business loans not backed by real estate accounted for only 9.4% of the $90.4 billion in commercial loans held by credit unions as of June 30, and commercial loans of all types accounted for only 7.4% of the credit union movement’s total loan portfolio of $1.15 trillion.

The movement’s history of relying on business loans backed by real estate extends to MBFS owners. Those 13 credit union owners had $679.6 million in real-estate-backed commercial loans as of June 30, and only $18 million in commercial loans not backed by real estate, representing less than 3% of all commercial loans. However, they have higher overall exposure to business lending, accounting for 14% of their total loan portfolios.

Together the 13 credit unions held $7.5 billion in assets and had 586,040 members as of June 30. They are:

• American Heritage Federal Credit Union, Philadelphia ($3 billion in assets, 203,287 members)
• American Spirit Federal Credit Union, Newark, Del. ($76.9 million in assets, 13,232 members)
• Century Heritage Federal Credit Union, Pittsburg, Pa. ($175.7 million in assets, 14,994 members)
• Choice One Community Federal Credit Union, Plains Township, Pa. ($110 million in assets, 12,337 members)
• Discovery Federal Credit Union, Wyomissing, Pa. ($159.6 million in assets, 8,613 members)
• Eagle One Federal Credit Union, Claymont, Del. ($89 million in assets, 11,211 members)
• Erie Federal Credit Union, Erie, Pa. ($640.2 million in assets, 64,126 members)
• Launch Federal Credit Union, Merritt Island, Fla. ($869.5 million in assets, 69,256 members)
• People First Federal Credit Union, Allentown, Pa. ($724.1 million in assets, 72,514 members)
• Service 1st Federal Credit Union, Danville, Pa. ($488.1 million in assets, 35,446 members)
• Sun East Federal Credit Union, Aston, Pa. ($744.7 million in assets, 52,185 members)
• Viriva Community Credit Union, Warminster, Pa. ($82.6 million in assets, 8,296 members)
• West-Aircomm Federal Credit Union, Beaver, Pa. ($271.3 million in assets, 20,543 members)