HARRISBURG, Pa. (3/19/14)--Credit unions are reminded that they can use the Pennsylvania Capital Access Program (PennCap) to guarantee their small business loans programs.
PennCap was established under the auspices of the Pennsylvania Economic Development Finance Authority (PEDFA) in 1994. Now, as the need for credit unions to provide these types of loans grows to meet increased demand, the Pennsylvania Credit Union Association (PCUA) investigated if the program would be valuable to credit unions, said Molly Snody, director of business advisory services.
Christina Mihalik, PCUA vice president of governmental affairs, coordinated meetings with the Pennsylvania Department of Community and Economic Development (DCED), which led to the league's discovery of the program and the fact that credit unions are allowed to participate.
"Participating in PennCap would be a positive step forward for Pennsylvania credit unions and make us more recognizable as small business lenders," Snody added.
The reserve, owned and controlled by PEDFA, is designed to cover future losses from a portfolio of loans that are made through this program. Essentially, when a credit union signs up, $50,000 is set aside in a trust account managed by Mellon Bank. This $50,000 is held in trust as a reserve against future losses. Fees are collected at the onset of each program loan; they are collected from the borrower, the credit union and DCED, then added to the credit union's funds held in trust.
The fees are combined with the initial $50,000 investment made by DCED. If a program loan does go bad and the credit union suffers a loss, it can go to the trust to make up the loss, up to the aggregate amount held in trust for that credit union. "This is a loan portfolio risk mitigation tool that we found out is available to credit unions," Snody told News Now.
The program can be used for all ranges of loans, she said, so it fits credit unions of all sizes. The average member small business loan in Pennsylvania is $150,000, excluding microloans or those less than $50,000 granted to small businesses.
The Credit Union National Association strongly supports congressional efforts to increase the credit union member business lending cap to 27.5% of assets, up from the current 12.25% limit. It is estimated that credit unions would be able to lend an additional $13 billion to small businesses and help them create more than 146,000 new jobs in the first year after enactment, CUNA noted.