Unified Federal Credit Union in Peabody is one of four Massachusetts institutions jointly forming a new credit union service organization to facilitate business lending.

Banks have long occupied the business lending marketplace, but with the recent creation of Northeast Member Business Services – a credit union service organization, or CUSO – local credit unions are ramping up their competitive capabilities to lend to small businesses throughout Massachusetts.

Fitchburg-based Workers’ Credit Union, RTN Federal Credit Union in Waltham, Chelsea-based Metropolitan Credit Union and Unified Federal Credit Union in Peabody are the four founding institutions of Northeast Member Business Services, a CUSO that will provide the infrastructure to service and manage business loans. By combining the four institutions, more than 20 branch locations will be able to provide business services.

Scott Anderson, chief executive officer of Northeast Member Business Services, said he approached the credit unions with the concept last year. Anderson, who had previous experience with a large CUSO, said the group wanted to move into small-business lending, allowing them to compete with banks and offer support to local businesses.

“Credit unions are looking hard at their mission,” Anderson said.

Because of changes made by the National Credit Union Administration in the last several years, credit unions can offer membership and services to people based on the communities where they live, broadening the traditional membership requirements of working at a specific company or within a certain industry.

‘In the Background’

Because establishing a business lending department at a credit union can be a costly venture, some credit unions are combining capital and working jointly to offer small-business loans. Frederick D. Healey, president of Workers’ Credit Union, said the institution had long contemplated a plan to offer member business services, such as lines of credit and commercial real estate loans. Through Northeast Member Business Services, the credit union will offer commercial mortgages, lines of credit, term loans and Small Business Administration loans for member-owned businesses. Workers’ will launch its product offerings on May 15, with the remaining three credit unions launching the program on a staggered schedule thereafter.

“When fully implemented in 2005, businesses will have the same privileges that our individual members have experienced for decades,” Healey said.

Workers’ Credit Union, with more than $485 million in assets, has already introduced a new line of business checking accounts and will soon have an online cash-management tool and other services designed for retailers.

Healey said the main objective of the institution in offering business lending is to provide small-business loans under $250,000. The average loan balance is expected to be approximately $100,000.

Because credit unions have historically dealt with personal banking, Healey said the CUSO is providing expertise and guidance to assist in offering a new business line of products. An applicant can go to any of the participating credit union branches and apply for a small-business loan. The application is sent to the subsidiary location in Keene, N.H., where credit scoring and underwriting takes place.

“We’re [Northeast Member Business Services] in the background like a bank holding company would be,” Anderson said.

The loan decision is sent back to the sponsoring credit union, where the closing takes place.

Each of the four credit unions has hired a commercial sales officer who will teach branch managers to initiate new business lending activity, Healey said.

“You need people who know what they are doing,” Healey said, who will serve as chairman of Northeast Member Business Services.

Because credit unions in the past dealt mainly with personal banking, Healey said it’s helpful to work with a CUSO because the credit unions now will be dealing with larger, riskier loans.

“Now you’re looking at an inventory loan or accounts receivable or an SBA loan Â… all of a sudden you’re dealing with Â… cash flow,” Healey said, adding that the pooled resources and expertise of a credit union service organization can help individual institutions evaluate risk.

A business must be within a credit union’s membership area in order to qualify.

Healey said he has seen a need for more business lending at credit unions. Not so long ago, a Workers’ Credit Union board member who ran an insurance company had an opportunity to purchase an office building. When asked if Workers’ could make the business loan, Healey had to turn him down.

“Those are the types of requests we get day in and day out,” Healey said.

Richard Wright, chief executive officer of RTN Federal Credit Union, a $372 million industrial credit union, said he was also interested in getting involved in small-business lending, but costs involved in doing it alone were prohibitive, preventing the credit union from getting involved sooner.

“There was a growing demand,” Wright said, but not enough to justify the expense of growing a business lending department internally.

Wright said Northeast Member Business Services is a good alternative for credit unions to make business loans without the expense of going at it alone.

Leonard Greene, president and CEO of Unified Federal Credit Union, said he also had longtime hopes for expanding into business lending that were made possible by the formation of Northeast Member Business Services.

“We were looking for a new avenue to expand products and services,” Greene said.

Because Greene had no experience in business lending and costs were high, he said joining a CUSO was the best idea.

Unified, with $155 million in assets, serves select employee groups like Amesbury Hospital. Greene said there is growing business activity in Amesbury. There is a corresponding need for business credit in Unified’s membership area as more people start their own businesses ventures and seek out lending services unique to such enterprises.

By the end of the year, Healey said, the participating credit unions are hoping to see growth in business deposits and to generate few million dollars in business loans.

Robert Cashman, president and CEO of Metropolitan Credit Union, said he hopes that by offering business services, the credit union will solidify relationships with existing members and continue to expand. Metropolitan has $580 million in assets and operates with a community charter and with affiliations to select employee groups.

Many of Metropolitan’s members have been looking for business opportunities, while some smaller businesses have already been using the credit union for deposits, but had loans with other institutions, Cashman said.

Robert Kimmett, senior vice president of marketing and public relations at the Massachusetts Credit Union League, said only a few area credit unions have offered business lending before Northeast Member Business Services was created.

“It’s very much a demand-driven product,” Kimmett said. “It will become somewhat more popular.”

Kimmett said he is unsure if business lending will rapidly accelerate in the credit union industry because some institutions may not feel there is sufficient need, even with the help of a CUSO.

The Northeast Member Business Services is looking for other credit union members. In order to be part of the organization, a credit union can participate as an owner/partner. The credit unions divide the expenses to operate the CUSO.

Cashman said Northeast Member Business Services can enable other credit unions to get a business lending operation up and running.

While the creation of the CUSO is exciting news for the credit union industry, the banking industry is not pleased. Daniel J. Forte, president of the Massachusetts Bankers Association, said commercial lending was never intended for credit unions.

“This is another example of their expansive growth,” Forte said.

The relaxation of NCUA’s membership regulations is part of the problem and CUSOs are another way to circumvent individual rules for credit unions, Forte said.

Forte said the right way for credit unions to expand is by becoming a mutual savings bank and converting to a savings bank charter, but NCUA has made that difficult for credit unions to do.