Four Minnesota Credit Unions Make a Play for Bigger Business Deals
Spire Credit Union is one of four credit unions that have joined a new effort to offer commercial lending services. Spire Credit Union

Four Minnesota Credit Unions Make a Play for Bigger Business Deals

In a shift from their strictly consumer-oriented roots, four of the state’s largest credit unions are jumping into the commercial lending space.

Credit unions have historically been more consumer-oriented organizations. Originally established to serve specific population segments (e.g., teachers, firefighters, etc.), they’ve generally stayed out of the broader realm of commercial lending, although they have written loans for smaller businesses over the years.

That may be shifting. Earlier this month, four of Minnesota’s largest credit unions announced plans to “band together” to offer a wider range of commercial lending services. The goal is to chase bigger deals that they don’t have the resources to handle on their own. The four credit unions involved are Affinity Plus, Hiway, Spire, and TopLine Federal. They’ve named the effort United Financials Capital LLC.

Plenty of other credit unions in the state are apparently eager to jump into the business lending space. Dan Stoltz, CEO of Spire, says he’s fielded inquiries from 10 other credit unions looking to join the effort. For now, the four partners aren’t allowing others in, but Stoltz says they’re keeping a list of those who have expressed interest.

Stoltz says the “sweet spot” is loans in the range of $5 million to $50 million. Potential borrowers could include developers, government entities, or other infrastructure builders.

“In this niche of lending, we’re just giving the marketplace another option,” Stoltz says. “It’s unique, and I’m going to call it refreshing, when financial institutions work together and look for some collaborative wins.”

Stoltz says the four credit unions had been weighing several potential partnerships for “quite some time.” They had considered joining forces on legal services, IT platforms, and even human resources systems. It was Michael Dalglish, a Twin Cities-area financial industry vet, who brought them together in the name of commercial lending, Stoltz says.

Business filings with the Minnesota Secretary of State show that Dalglish established United Financials Capital back in March 2020. The effort formally launched in January of this year, Dalglish says.

Dalglish sees the venture as a way to fill a much-needed void in service offerings for the four credit unions.

“We’re looking to serve our members currently banking with our organizations who are looking for these kinds of services,” says Dalglish, who now serves as CEO of United Financials Capital. “It’s nice to be able to say ‘yes’ to them. We have an opportunity.”

Dalglish says the organization has closed on some loans, but it’s too early to disclose them publicly.

United Financials Capital is formally recognized as a credit union service organization, or CUSO, by the banking authorities.

Perhaps the venture is well-suited for the credit unions’ more business-oriented members, but what about the average consumer? Spire’s Stoltz predicts that the effort won’t have any negative implications for existing members. If anything, he says, it may have a “trickle-down” effect.

“I’d say the indirect consumer benefit would be in helping these businesses be more successful and more competitive,” which could translate into lower rates for consumers, Stoltz says. “But I would say it’s predominantly a business benefit that hopefully trickles down to the consumer.”

The National Credit Union Administration (NCUA), the U.S. government’s regulatory arm for credit unions, has given its blessing. “They had to scrub our bylaws and rationale for getting together – all the things that would be a regulatory concern,” Stoltz says.

Banks keep a close eye

Credit unions have certainly begun more to think like banks within recent years. Michael Iselin, an accounting professor at the U of M’s Carlson School of Management who’s researched financial institutions, says the development is in line with many credit unions’ recent push to chase larger business deals.

“There’s been a growing trend in the last five or six years of credit unions buying banks,” Iselin says. “One of the primary reasons for that type of activity is to get into business lending, and also to acquire the expertise of [the banks’] employees. … This agreement is another way that credit unions are trying to expand their business from consumer lending activity—which has been their bread and butter and their reason for existence for a long time—into commercial lending markets.”

Of course, that type of movement hasn’t always been well received among banks, who’ve long taken issue with credit unions’ tax-exempt status. Iselin says the new partnership is likely to “raise the eyebrows of banks,” who may perceive credit unions as having an unfair advantage.

Still, from a competitive standpoint, the emergence of United Financials Capital doesn’t seem to pose any immediate concerns. “I don’t see it having anti-competitive effects,” Iselin says. “My understanding is that they’re not going to be collaborating and colluding on their current products. … Currently, the plan is just to work together to develop in-roads in this larger corporate lending space where they currently don’t have a footprint.”