1. Member Business Loan Participations: A Key Growth Strategy
Dutch Ducher, EVP
Commercial Alliance, LLC
4/3/2019

2. Executive Summary
This presentation provides an overview of the loan participation process for credit unions that purchase (or originate) Member Business Loans (MBL). MBL’s eligible for a participation generally range from $500,000 to $5,000,000. MBL’s have experienced double-digit growth in the last several years, and this trend is expected to continue.
Commercial Alliance, LLC
4/3/2019

3. Benefits of Loan Participations
Originating credit unions can gain a valuable tool for managing their portfolio and the ability to originate larger loans.
Purchasing credit unions gain MBL experience, while minimizing the need for new hires or additional resources.
Purchasing credit unions can learn the advantages of becoming originators.
Commercial Alliance, LLC
4/3/2019

4. Benefits of Loan Participations
MBL’s can be more profitable than other loan types due to low loan losses.
Participations can provide diversification within your loan portfolio – and risks are shared with other credit unions.
The ability to offer larger loans can position credit unions as a major player in the local community.
Commercial Alliance, LLC
4/3/2019

5. Steps for Completing an MBL Loan Participation
Loan Officer (or BDO) at the credit union originates the loan by submitting an application package.
Commercial Alliance (CA) will prepare the underwriting report and submit it to CA’s internal loan committee for a credit decision.
CA will determine the need for a participation (i.e. subscription) based on the list of credit unions that have expressed interest in becoming a buyer. Their share of the loan will be based on the credit union’s asset size and the amount they desire.
Commercial Alliance, LLC
4/3/2019

6. Steps for Completing an MBL Loan Participation (continued)
Credit union CEO will be contacted for a subscription (on a rotating basis) via short summary or redcap of the loan.
Summary will contain: Loan description, terms, yield, Debt Service Coverage, Guarantor info, Net Worth, credit scores, collateral description, Loan-to-Value, Loan Grade.
A timely (yes/no) response to a subscription request is extremely important.
A “yes” with the dollar amount desired (e.g. Our credit union would like to purchase $200,000) will place you in line for the next step.
A “no, but keep us on the list” is also OK – CA will keep you on the subscription list for next time.
No response will have the your credit union removed from the subscription list unless CA is asked to do otherwise.
Commercial Alliance (CA) will prepare the underwriting report for CA’s internal loan committee for a loan decision.
Commercial Alliance, LLC
4/3/2019

7. Steps for Completing an MBL Loan Participation (continued)
If you respond “I’m interested in buying $200,000.”
You will receive the full Underwriting Report
You will receive an invitation to a full presentation of the loan via conference call to answer all questions.
An approximate closing date will be discussed.
CA expects a yes/no verbal commitment within 24 hours of the loan presentation.
CU will receive a written communication to sign which will formally bind it to the loan amount agreed to.
Commercial Alliance, LLC
4/3/2019

8. Steps for Completing an MBL Loan Participations (continued)
A formal Offer to Lend will be sent to all parties which binds them to the loan transaction.
The Underwriting Report may have some “Subject To’s” which must be cleared prior to the loan closing such as: Title Work, Appraisals, Environmental Reports, etc.
CA will conduct pre-closing due diligence.
Loan documentation will be prepared under the review of CA’s legal counsel.
Due diligence make take 30 to 270 days – 60 days is typical. Credit unions will not be contacted with updates during this process.
Commercial Alliance, LLC
4/3/2019

9. Steps for Completing an MBL Loan Participation (continued)
Once Due Diligence has been satisfactorily completed:
Purchasing CU’s will receive Funding Notification 1 or 2 business days prior to the closing.
Funds must be wired to CA within 1 day to CA to fund closing.
Closings are typically done at a Title company.
After the loan has closed, purchasing credit unions will receive a Participation Certificate which states the dollar amount purchased and the percentage of the loan owned.
Important Note: Make sure your credit union has signed a Master Participation Agreement with Commercial Alliance.
Commercial Alliance, LLC
4/3/2019

10. Steps for Completing an MBL Loan Participation (continued)
Loan Servicing is performed by CA after the loan closing.
Loan is “Booked” on the CA system
Security Agreements are immediately filed
Principal and interest payments are split up
All ticklers set: Financial Info., Insurance, Property Taxes, UCC’s.
CA will follow up on all ticklers
Subscribing credit unions will receive monthly reports such as Trial Balance, Risk Ratings, Exception Reporting, etc.
Commercial Alliance, LLC
4/3/2019

11. Steps for Completing an MBL Loan Participation (continued)
Purchasing CU’s will not receive a duplicate loan file, due to the logistics of managing multiple credit unions. CA’s legal opinion and the NCUA support this approach. Refer all Examiners/ Auditors to CA at exam time.
Commercial Alliance, LLC
4/3/2019

12. Sample Loan Summary/ Recap
Underwritten by
Commercial Alliance
Borrowers/ Guarantors
Fictional Clinic Associates, LLC.
Unlimited Joint and Several X3
#1 Credit Score: 711; Net Worth $5.9 MM
#2 Credit Score: 795; Net Worth $4.1 MM
(Names are in Underwriting Report)
Pre-Payment Penalty
Yes; years – Refinance only
Collateral
1st REM on 7 suite medical office building at 1700 Fictional St., Troy, MI and assignment long term leases-full lease up
Purpose
Refinance Balloon Note
Rate
4.75%
Collateral Value - LTV
72%, Subject to reviewed appraisal
Loan Grade
4 (out of 5)
Debt Service Coverage (DSC)
1.57
Term
5 year fixed, 20 year amortization
Total Loan
$2,325,000
Amount Available for Participation
$1,800,000
Servicing
Yes. Commercial 65 basis points (bps)
Net Yield
4.00% net of servicing costs and 0.50% (annualized) origination fee to purchasers
Lead Credit Union
Your Hometown Members Credit Union
Commercial Alliance, LLC
4/3/2019

13. Sample Loan Summary/ Recap (continued)
NOTE: Your statement of interest at this point does not obligate you to purchase. It only obligates you to give a final “yes” or “no” in a timely manner after reviewing the loan recap. Commercial Alliance will contact you for a teleconference Loan Presentation once you have received the Underwriting Package.
The order in which you contact us will determine availability to purchase. Minimum participation interest is $100k. Kindly state your interest in the loan and amount that you MAY like to purchase, pending your full review, as soon as possible. Other credit unions may be solicited so time is of the essence.
NOTES: Respond by stating your preliminary interest and amount you may wish to purchase. For additional detail on the loan prior to the teleconference contact Laura Szpont at or Marriane Kure at
Commercial Alliance will assist credit unions that are new to Loan Participations, Servicing, Accounting, etc.
Commercial Alliance will attempt to honor your requested amount at closing but it may be subject to adjustment due to demand. Participation, Servicing and Commercial Alliance Membership agreements are required by closing date of loan. Offering is subject to actual loan closing and completion of CA’s required due diligence by the potential borrower.
Commercial Alliance, LLC
4/3/2019