CHICAGO-Retail lending grew by $700,000 at San Antonio CU during April and it is now working toward a goal of $1 million per month in funded retail loans.

Jacob Montoya, loan officer, indirect merchant financing at SACU, said the credit union, which been offering retail lending for the past nine years, averages between $500,000 and $800,000 in funded loans per month. The $2.9-billion, 255,000-member SACU uses CU Direct Lending's (CUDL) platform for retail loans, and Montoya spoke here as part of CUDL's 2012 Lending Conference.

SACU's average credit score on retail loans is 640 or above, but it also considers account relationships during the underwriting process. Delinquencies on SACU's retail portfolio are currently under 1%, said Montoya. The CUDL platform allows SACU to input specific criteria that must be met for automatic approval-such as credit scores, debt-to-income ratio and more-and loans that are not automatically approved or rejected are sent to the CU for follow-up. Montoya noted that he even received an application in his hotel room at 11 p.m. the night before CUDL's conference opened.

Merchants using SACU's retail lending platform can access it 24/7, and Montoya said that if an application is in by 1 p.m., it's not uncommon for loans to be approved and funded in the same day. Loans approved after that time can be funded the next morning.

From the back office perspective, Montoya said that SACU treats retail loans like a credit card, although an actual card is not issued and funds are not made available as the debt is paid down. The loans appear on credit reports and Call Reports as unsecured credit card loans.


47 Merchants Participating

SACU currently has 47 different merchants in its retail lending portfolio and receives an average of 175 loan applications per month, 40% of which are funded. Montoya said applications have ticked up recently-about 300 applications submitted during April-with an increase in home renovation applications as the weather has improved.

SACU's retail lending portfolio was $5 million in 2010, $6.3 million last year and is on track to exceed $7 million in 2012.

The average retail loan at SACU is for around $5,500, for everything from home improvements to air conditioner repairs. Montoya said SACU targets merchants that have an exiting relationship with the CU, have been in business for at least two years, are affiliated with the Better Business Bureau and are on Angie's List. Montoya said that rates range from 9.99% to 13.99%, and fees to the merchant are determined both by the market and what other lenders are charging.

SACU aims to add about two merchants per month to its portfolio, but Montoya said that the CU generally does not partner with doctors' offices, because they already have so much paperwork that they don't usually have the time to fill out applications. He added that the credit union is also wary of furniture companies after working with some that sent in a lot of bad paper.


Open Lines of Communication

Montoya stressed the importance of open lines of communication, as well as due diligence on each merchant the CU signs up; representatives from the credit union meet with each merchant at least once per quarter. He added that availability and speed are also key.

"Even those decisions that go into a refer status late at night, we want to get to them first thing in the morning and make sure we can assist them," said Montoya. "This auto-decisoning is the key to the whole point-of-sale retail financing program. They want quick decisions, and if not, we're going to lose the deal to another lender."

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