In my 35 years serving credit unions and CUSOs, I have come into contact with many credit union collaborations, mostly through the use of CUSOs. However, there are examples where credit unions have collaborated with organizations that are not CUSOs and have yielded results that need to be shared and honored. The stories are emblematic of the credit union difference and why we love them. This is one of those stories.
Who has not dreamed about starting a successful business? Yet, for most folks, the dream remains a dream. Successful businesses require a marketable idea, a feasible business plan, the people with skills and determination to execute the plan, and the capital to fund the start-up period prior to profitability. A successful business is not only good for the entrepreneurs, it is good for the people employed by the business, the vendors to the business, and the vitality of the community the business serves.
Harborstone Credit Union in Lakewood, Washington was initially approached by folks in the Business Department of the University of Washington. UW developed a program to mentor budding entrepreneurs on how to create good business plans and execute them. The problem was the lack of capital. Most of the plans had a modest capital requirement but even modest levels are challenging to someone at the beginning of their business life’s journey. The folks at UW proposed to perform the due diligence on the people and the plans and once they found that a business plan was feasible and the people had the knowledge and skill to execute the plan, Harborstone would fund the business. The loans would be no more than $50,000 each.
Phil Jones, CEO of Harborstone and BIN director, saw this program as an opportunity to revitalize distressed communities where many of his members resided, and to “pay forward” an opportunity for ambitious and capable individuals. The credit union would realize the benefits from such community involvement: stronger communities, serving the underserved, more members, and more loyal members. Realizing that the program will be stronger with more credit union involvement, Harborstone reached out to other area credit unions. BECU, Verity Credit Union, and OnPoint Credit Union joined Harborstone as original founders, with Rivermark Credit Union, and Sound Credit Union joining later on. Other credit unions are also exploring participation.
To more fully support the project, Harborstone realized that there was a need for the involvement of an organization to complement the efforts of the credit unions; an organization to provide education and training services and access to resources beyond the powers of credit unions to acquire. To this end, they joined forces with a non-profit Community Development Financial Institution six years ago called Seattle Community Capital Development and they were off and running. Seattle Community Capital Development was renamed Business Impact Northwest (“BIN”). BIN is dedicated to serving underbanked entrepreneurs. BIN provides coaching, classes, and access to capital to community small businesses, with an emphasis on working with traditionally underserved populations, including entrepreneurial low/moderate income earners, women, veterans, immigrants, members of the LGBTQ+ community, and African-Americans and other people of color. BIN has taken over the role of vetting and coaching the budding entrepreneurs.
As a CDFI, BIN is able to raise money to support its services, including making small business loans. BIN is the entity that makes the small business loans. BIN is not a CUSO. Credit unions do not own BIN but there are representatives from the participating credit unions who serve on BIN’s board of directors along with people from the community, including a banker from time-to-time. BIN is growing, expanding its services in the Tacoma/Pierce County area and in parts of Oregon.
The credit unions provide funds that greatly enhances BIN’s capacity to meet the loan demand and its mission. The credit unions provide the funding through a jointly owned CUSO called the Micro Loan Fund, LLC (“MLF”). Harborstone, OnPoint, Verity and BECU, Sound and Rivermark Credit Unions are the co-owners of MLF. As BIN approves the loans, one of the participating credit unions loans funds to MLF and MLF loans the funds to BIN. MLF provides a central means for the credit unions to interact with BIN and manage the lending process.
The loans carry an interest rate that fluctuates (currently between 4% and 6% above the cost of capital which is currently 2.5%). BIN remits monthly payments to the lending credit unions through MLF. A portion of the interest on each loan is paid to BIN to cover the cost of its services and for loan loss reserves.
BIN’s small business loan portfolio is approximately $10 million. The current default rate on the small business loan portfolio is only 2%. BIN provided PPP loans and has a PPP loan portfolio of $6.6 million. Harborstone, Verity, and Rivermark provided low cost lines of credit so that BIN could fund the PPP loans and not carry them at a loss.
John Zmolek, CEO of Verity Credit Union and BIN Director, says, “Building new businesses, especially in disadvantaged communities, is critical for the health of the communities that Verity serves. Business Impact NW can do things in their space (training and financial support for start-up and emerging businesses) that Verity could never do. Credit unions can raise funds at price points that Business Impact can never do. So recognizing the value we bring to each other is important. Hopefully many of these businesses will be successful and can become our members at some point in the future. We all do Youth Accounts hoping to grow a new member pool. Why wouldn’t we do the same thing in the business arena?”
Phil Jones says, “Overall, BIN and the MLF are doing exactly what I envisioned when thinking about this six or so years ago. We’ve had some luck along the way, for example the merger with Seattle CCD, but it’s been a grind for staff and board. Lots and lots of hard work. But, there is great passion, and that has sustained us through some difficult times. Just a few short years ago we were being criticized by regulators and examiners for our lack of adequate policies and procedures and insufficient financial returns. Certainly the financial situation can turn quickly because we lend to those businesses that nobody else will, but for now we enjoy a much improved business and kudo’s from both regulators and examiners. All in all, we are in a good place.”
Joe Sky-Tucker, the CEO of BIN, keeps BIN visible to the people BIN seeks to serve. BIN’s client snapshots feature the people and their stories. BIN and the credit unions enabled Nikki Guerrero of Portland to expand her business Hot Mama Salsa, Yuri Parreno and Ivonne Jurado to launch Ultrafino Panama Hats, Chera Amlag to open Hood Famous Bakeshops, and Acacia Kapusta to own and operate a food truck. Small loans and one-on-one support create life changing opportunities. To learn more about the credit union funded success stories visit BIN’s website at https://businessimpactnw.org.