New Law Allows Credit Unions to Offer Business Loans Backed by State Funds

New York Gov. Kathleen C. Hochul on Sunday signed a new law that authorizes credit unions to participate in the state’s Excelsior Linked Deposit Program, which the New York Credit Union Association called a major historic victory for the Empire State’s 314 financial cooperatives.

The Excelsior Linked Deposit Program was created in 1997 to assist small- and mid-size businesses in New York with expansions, modernizations, developments and other investment projects. Through the program, eligible businesses can obtain commercial loans from authorized financial institutions at significantly reduced interest rates. Lenders are compensated with a deposit of state funds at comparably reduced rates, according to the NYCUA.

Since 1997, NYCUA President/CEO William J. Mellin said credit union advocates worked assiduously and persistently to allow credit unions to participate in the program, which also marks the second time New York state has been authorized to deposit public funds in credit unions.

In 2019, former New York Gov. Andrew Cuomo signed legislation allowing credit unions to participate in the state’s Banking Development District program, marking the first time credit unions have been eligible to accept public deposits. Under the BDD program, financial institutions are offered incentives to open branches in communities that are designated as underserved by the state’s Department of Financial Services. When financial institutions open branches in underserved communities, they become eligible to receive below-market-rate deposits that are intended to lower the financial risks the institutions might incur.

“As we have stated for years, this new law is a ‘win-win’ for credit unions and New York businesses alike,” Mellin said in a prepared statement released Monday. “With credit unions now eligible to participate in the Excelsior Linked Deposit Program, New York businesses seeking to expand and evolve will have more access to affordable financial solutions. Similarly, credit unions will be able to deepen their relationships with businesses in their communities and provide them with even more services.

In addition to being open to all New York-based credit unions, the Excelsior Linked Deposit Program will also be available for credit unions that run branches in the state but are headquartered elsewhere, according to the Albany-based NYCUA.

New York Assembly Member Taylor Darling, who sponsored the legislation in the state assembly, said in a prepared statement that traditional banking institutions still possess many equity gaps especially when it pertains to individuals obtaining business loans.

“Allowing credit unions to now participate in the Excelsior Link program makes the program more accessible to our hard-working New Yorkers – especially our small business owners, who need our support now more than ever,” Darling said.

New York Senator James Sanders Jr., who sponsored the legislation in the state senate, said in a prepared statement that for far too long too many places throughout the state were banking deserts.

“By signing this bill, the Governor is unleashing the power of credit unions to aid the unbanked,” he said.