Lake Trust Credit Union underwrites business microloans up to $49,999 using personal guarantees and the knowledge of staffers trained to understand nuance.
Local and state economic development partnerships are extending Lake Trust’s efforts to support small business.
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) offers responsible, competitive financial services to retail members. It also views its support of local businesses as core to its mission.
The credit union — the continuing institution created by a merger of two Detroit and Lansing credit unions in 2010 — dove into member business lending shortly after and has since built a $200 million portfolio offering a growing list of services as well as loans, with a particular emphasis on commercial real estate.
It’s helping members build their businesses, and communities, one loan at a time.
Small Loans For Big Ideas
Lake Trust held internal discussions and met with an advisory group of small businesspeople before launching a microlending program built on five loan products: new vehicle, used vehicle, equipment, lines of credit, and credit cards.
“You have a big idea, a problem you want to solve, or a product that you’re excited to share with the world,” says the program’s landing page. “A micro business loan can help fill the gap between what you have now and what you need to grow, as a start-up entrepreneur or a seasoned business owner.”
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Backed by a $950,000 CDFI grant the credit union uses primarily as loan reserves, Lake Trust began making micro business loans in February with a goal of $500,000 this year. It has already doubled that output and provided a capital lifeline to more than 50 borrowers engaged in a variety of businesses.
The credit union piloted the program in three communities — Ann Arbor, Brighton, and Mount Pleasant — and quickly extended the effort to all of its 23 branches. The cooperative recently begun formal marketing and invites potential borrowers to reach out through its website. Importantly, though, employees also are critical to the program’s success. Of Lake Trust’s roughly 220 branch staff, 70 to 80 support microlending in various ways, with a handful of subject matter experts personally advising small business owners through the application process and beyond.
Some Risk For Community’s Gain
Andrea Mosher, SVP of Lending, Lake Trust Credit Union
Lake Trust dubs its micro business loans “Fast $50K” and underwrites them using the personal guarantee of the borrower.
“These are not the same as commercial loans,” says Andrea Mosher, Lake Trust’s senior vice president of lending. “It’s essentially a consumer product, and we have people trained to work with those nuances.”
Loans can run up to $49,999 but are currently averaging approximately $25,000. So far, the credit union has not realized any delinquencies; however, Lake Trust knows the loans are not without risk.
“We went in with the expectation that we would be helping people who are not tier one borrowers, and small businesses like this are at much greater risk of going under than big corporations,” Mosher says. “We knew we would see some low credit scores, but we look at the whole picture each time. There’s no black-and-white set of criteria.”
Having the CDFI grant to bolster reserves is nice, but Mosher says Lake Trust would have gone ahead with the microloan program even without it. The mission is what matters most.
“By getting these small businesses access to capital, we hope and believe we impact their ability to survive and grow, which in turn helps their communities do the same,” the Lake Trust senior lender says. “We’re trying to help make sure these Main Street-type communities can survive.”
The Power Of Partnerships
That’s a tall order, but the credit union also isn’t going it alone. It is working with other organizations that rallied their resources in response to the post-recession economic malaise that enveloped many of the small towns it serves.
One example is the work Lake Trust is doing with the town of Howell. The credit union has partnered with the Howell Main Street organization on a rent subsidy program intended to help startup retailers and restaurants in the community’s downtown.
“They came to us to ask for our partnership in supporting businesses willing to improve, expand, and hire,” Mosher says.
The program subsidizes rent for 12 months while the businessowners invest that money back into their businesses. The credit union’s role is both advisory and financial, the former in the form of providing business plan and cash flow advice, the latter in the form of interim financing while the local group awaits grant funding from the Michigan Economic Development Corporation.
Howell is a city with a population of approximately 9,500. It is located in Livingston County, the same county in which Lake Trust has placed its headquarters. Mosher says its work with the MEDC is now expanding to other communities, and similar support initiatives are focusing on individual businesses, too.
For example, Hometown Bicycles, a shop in Lake Trust’s hometown of Brighton, recently won a $25,000 Elevate grant administered by the Indianapolis FHLB. The couple operating the shop had been in business since 2010 and wanted to share their success while expanding their own operation. They turned to Lake Trust for help in applying for the grant, which will help pay for additional workspace, a community room, and incubator space for other aspiring entrepreneurs.
Dawn and Shaun Bhajan are leveraging the loan they received for their bicycle shop to add a community room and incubator rental space. Learn more in “The Ride to Creating A Well-Loved Business,” a blog post from Lake Trust. Photo credit: Diana Paulson at Diana Liang Photography.
That business-helping-business approach resonates with Lake Trust’s own people-helping-people philosophy.
“It’s not just about capital,” Mosher says. “There are many needs, and we’re always looking for new ways to help our members and local businesses meet them.”
This is the second of a two-part series on Lake Trust’s microlending program. In Part 1 — Lake Trust Builds Big Dreams With Microloans — learn how and why the credit union built on its experience as a commercial lender with a cooperative spirit to bring new loan and small business products to market.
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