Lake Trust’s microlending program uses CDFI grant money to provide reserves for very small business loans.
The cooperative has loaned approximately $1 million across some 50 loans to a variety of businesses, supporting local economic development in the process.
CU QUICK FACTS
Lake Trust Credit Union
HQ: Brighton, MI
Data as of 06.30.19
12-MO SHARE GROWTH: 2.3%
12-MO LOAN GROWTH: 1.7%
Lake Trust Credit Union ($1.9B, Brighton, MI) dove into member business lending not long after its creation through a merger of equals in 2010. Since then, the cooperative has built a healthy MBL portfolio and expanded its business services into checking, treasury services, credit cards, and commercial real estate lending. In 2017, the cooperative became the first credit union to be named Michigan lender of the year by the Small Business Administration.
Despite the array of services, leaders at the credit union — which serves southeast and central Michigan — thought something was missing. So, in 2019, Lake Trust moved into microlending, providing small loans and guidance to entrepreneurs who might otherwise risk their personal credit or simply stay on the sidelines.
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Using a CDFI grant of $975,000 to bolster reserves, Lake Trust has made approximately 50 microloans that average $20,000 to $25,000 each. Business owners — including landscapers, HVAC providers, photographers, plumbers, movers, truckers, pharmacists, solar solutions providers, and a sound and lighting specialist — have put the money toward vehicles, equipment, supplies, and other expenses.
Help For The Whole Community
Andrea Mosher, SVP of Lending, Lake Trust Credit Union
The diversity in businesses served reflects the credit union’s commitment to help its entire community, says Andrea Mosher, senior vice president of lending at Lake Trust.
“Providing these small businesses this much-needed capital has a positive impact on their financial wellness that extends to the communities where they live and work through job creation and economic development,” Mosher says.
Lake Trust began discussing a move into business microlending not long after Mosher joined the organization four years ago.
“People were coming to us for help,” she says. “We formed a business advisory group that helped us understand what needs were not being met.”
That group confirmed what the credit union was hearing: Small-business owners needed capital, seed money they could access without having to max out their credit cards or mortgage their homes.
“There just wasn’t anywhere else for them to go,” Mosher says. “Typical commercial lending is too expensive and not timely enough, and frankly, the size of these loans is not something that banks want to spend time and energy on. It’s just not their niche.”
Reserved Or Not, Ready To Go
Microlending is not a niche for banks, but it was an opportunity for the credit union. So, Lake Trust decided to create a microloan program and seek grant money to help underwrite the loans.
Lake Trust lays out the idea behind its microloans and then ties the product to its traditional, larger lines on this website landing page. To view the full image, click here.
“Honestly, we would have gone forward even without that grant,” Mosher says, such was the need and the demand.
The CDFI Program approved the grant in September 2018, and the credit union rolled out business microloans in February 2019 as a pilot project in three very different towns.
The pilot markets were:
Ann Arbor — Home to the University of Michigan; located approximately 40 miles west of Detroit.
Brighton — Small hometown of Lake Trust; located approximately 40 miles north of Detroit.
Mount Pleasant — A more rural community with below median income and higher unemployment; home to Central Michigan University; located approximately 110 miles northwest of Brighton.
A few months later, the credit union extended microloans to all 23 of its branches and created a full line of business services. It splits its credit products into five types: new vehicle, used vehicle, equipment, lines of credit, and credit cards. And without the benefit of formal advertising or marketing, Lake Trust more than doubled its goal of $500,000 in loans for 2019.
“It has far exceeded our expectations,” Mosher says. “We’ve had no losses, and we’ve validated what we believed was a real need in our communities.”
Building On Strength
Although many of the new borrowers were already retail members of Lake Trust, the microloan program builds on Lake Trust’s experience as a traditional business lender, a brisk business that recently has surged. Lake Trust’s MBL balances have risen 28.2% since the end of 2017 to $192.3 million in the second quarter of 2019.
The credit union kicked off formal marketing for business services in the fall of 2019, and potential borrowers can reach out through the website, too. There, they can request someone from the credit union contact them to talk about their business needs and how a Fast $50K — the loan’s branded name — can help them.
Indeed, the credit union’s lending staff is crucial to the process because the loans don’t follow the same trajectory as the larger commercial business loans or retail loans.
“There is no matrix where we check each box and say they met this and that criteria,” Mosher says. “We’re going to help with a business plan, if we can, and see how we can help them realize this dream and be successful.”
Business owners have these discussions with subject matter experts spread across the branches. Out of 220 or so employees working in the branches, 70 to 80 support microlending, including that handful of SMEs who understand the nuances of business structure and the documentation required for such specialized financing, Mosher says.
Local business development centers and other groups also provide valuable resources to the budding businesspeople, further extending the support that began at the top of the food chain at Lake Trust.
“This was a strategic initiative for our leadership team,” Mosher says. “We made the decision to pursue this and presented it to our board. They understand our objectives and we keep them informed.”
In fact, board and management objectives coalesce nicely around the microloan program.
“We’re very focused on social impact as an institution,” Mosher says. “We don’t necessarily drive our financials toward a high ROA, but those returns allow us to do good work in the community.”
This is the first of a two-part series on Lake Trust’s microlending program. In Part 2 — Lake Trust Pushes And Partners To Boost Local Business — learn how Lake Trust deals with risk in the microloan program and how the credit union partners with economic development organizations to help small-business people and their communities.
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