By Ray Birch
ORONO, Maine—Sometimes, strong community relationships can lead to some interesting offers for credit union members. That’s just the case with University CU and the small town of Orono—UCU is offering a 0% loan for local businesses to help them through the pandemic.
Despite the attractive rate, the $382-million credit union says the loan on which it has partnered with the city and which also includes deferred payments for six months, still needs some time to get traction, as many of the small businesses here are hesitant to take on more debt, even at 0%.
The relief loans, explained Derek Herbert, business services manager for UCU, are meant to fill in where Paycheck Protection Program loans may have fallen short.
“With the PPP loans, the business has to use those funds for specific purposes, such as for payroll or rent,” reminded Herbert. “With our loan the business can use it for whatever they need—to grow, add to their capital, or just to help them keep their doors open. Local shops are telling us they like the fact that they can use the money for things PPP loans don’t cover, and that they are thankful for it.”
The loans range from $5,000-$10,000, and so far a handful of local, primarily larger businesses have applied, said Herbert.
The 0% APR loan offer would not have been made were it not for the strong relationship between the credit union and the town of Orono, which is home to the University of Maine.
“Our roots are in Orono. University Credit Union was founded here 50 years ago,” said Herbert. “We wanted to help out the businesses that need it the most.”
‘Jumped’ On Offer
Herbert said the town approached the credit union about offering the loan.
“We jumped right on that; not only to help the businesses in a town where we started, but also to help the credit union deepen relationships here,” explained Herbert. “This loan presents a good opportunity for us to start working with some of the businesses that we haven't worked with in the past. Maybe some of these business, I believe, thought they were too small, did not do enough business to be bankable.”
Derek Herbert
What has been a factor in response, added Herbert, is a number of the small businesses in Orono are hesitant when it comes to borrowing.
“They know about the payment deferral and the zero-percent interest,” he said. “But many are nervous about taking on more debt right now, nervous about eventually having to make a new monthly payment. There's a lot of uncertainty, as we know, about the coronavirus. That is making some businesses hesitant to pull the trigger on this loan.”
Herbert acknowledged he was surprised by the concerns from small businesses, adding the credit union is not worried about repayment on the loan.
“The risk to us is minimal, with the town guaranteeing up to 80% on these,” he said. “This is not a loan we are making money on, but we are building relationships and we are helping out the town where we began, which is rewarding.”
Knocking On Doors
Herbert said the loan has also opened the door for the credit union to talk to more local businesses than it has in the past.
“We have our team out on the street knocking on the doors of Orono merchants,” Herbert said.
In addition, University CU has been promoting the loan offer through its online channels, and the town of Orono is letting businesses know the money is available.
“The town has a tax fund set aside from which they are using money to help us to drop the rate to 0% and to also guarantee the loans,” he said. “The loan is needed now, because PPP loans did not reach everyone and they may not have been broad enough for some businesses’ needs. We want merchants to know University Credit Union cares about them and is here for them.”
Herbert said if the pandemic persists well into 2021 the credit union will look to make a similar loan offer in other towns in which it has a presence, such an offer is no certainty, given that it lacks the very close relationship in other markets that it enjoys with Orono.