When a local foundation reached out to Choices Federal Credit Union about offering microenterprise loans, the credit union was interested but hesitant. Staff members struggled to structure a product that would be large enough in scale but also acceptable to regulators.
The solution emerged during a meeting with long-term industry mentor St. Louis Community Credit Union this past fall. Credit union leaders from Choices Federal and St. Louis Community discussed ways to work together to advance common goals. The group developed a program in which Choices Federal would introduce a microenterprise product to its borrowers, and St. Louis Community would agree to purchase a 90-percent participation in each loan closed under the program.
“These loans will assist aspiring entrepreneurs and small business owners to finance the start-up or expansion of their businesses,” says Phil Minden, Choices Federal chairman. The small loan sizes (under $35,000) will target a segment of the market that is largely underserved by traditional financial institutions.”
Choices Federal also received a $15,000 grant to aid the program thanks to the local foundation that originally suggested the product. The grant allows Choices Federal to close up to $100,000 in microenterprise loans, which will be targeted at $35,000 or less.
“We’re excited to partner with Choices on this initiative to bring more resources to the small business community,” says Mike O’Brien, St. Louis Community SVP and chief marketing officer. “Most financial institutions don’t want to offer micro loans, but it’s a natural [fit] for both of our credit unions. Working together makes a lot of sense – practically and philosophically.”
The joint structure with St. Louis Community enables Choices Federal to offer members a new product while mitigating potential risks. The credit union plans to offer loans for the next two years, expanding its portfolio to $250,000, and then move forward independently.
“The collaboration [with St. Louis Community] is an excellent example of how larger, more established credit unions can work with small, emerging credit unions to expand their product base and grow their balance sheet,” says Minden.