The Alaska Commercial Fishing and Agriculture Bank recently began offering loans for tourism and resource development projects, and the early inquiries are from the Kenai Peninsula.
"I only have two completed applications, and both are from the Kenai Peninsula," said John Delano, CFAB vice president. "Almost all the calls I've had have been from the peninsula."
The interest so far has been in loans for tour boats and lodges, he said, but until the applications are approved, he could not be more specific.
CFAB previously made loans only for commercial fishing and agriculture. Last spring, the Legislature passed a bill authorizing it to give loans also for tourism and resource development ventures. Gov. Tony Knowles signed the bill, which took effect Aug. 30.
CFAB can loan up to $500,000 to individuals or married couples, and up to $1 million to corporations, partnerships or limited liability companies, Delano said. It often can offer longer terms and lower interest rates than conventional banks, and it can tailor payment schedules to match the revenue peaks of seasonal businesses.
Applications must be from Alaska residents or from businesses controlled by Alaska residents. Under the new rules, any business that derives income from tourism or resource development could qualify. That could include businesses from lodges and tour boats to mining ventures, gravel pits or hydroelectric projects.
Mark Gregory, Kenai small business development director for the Small Business Development Center of the University of Alaska, said CFAB has long served commercial fishers, who may have trouble obtaining loans from commercial banks. He said CFAB also should be helpful to the tourism industry.
"I've already had two small businesses work with them that can't get financed locally through conventional banks," Gregory said.
One is a lodge, and one is a fishing charter business.
Conventional banks have been cautious about investing in marine enterprises, he said. There is strong competition in the charter industry, and if a motor blows up, a boat used as collateral may lose half its value. Likewise, he said, banks have been cautious about financing bed-and-breakfast operations.
"B and Bs are largely home-based. They could be full-time or supplemental income. It's hard for a bank to establish whether it's financing a home or a business," he said.
John Hoyt, Soldotna branch manager for National Bank of Alaska, said it remains unclear how CFAB's move will affect conventional banks in Alaska, which are heavily involved in financing the tourism industry. There may be a niche to serve borrowers conventional banks would not normally serve, but if CFAB targets quality borrowers, it may compete with conventional banks, he said.
"If they're looking at changing their focus, that's probably a good business decision," he said.
CFAB was created in 1980 with $32 million in seed money from the Legislature -- which it repaid by 1998 -- and authorized by statute to loan money only to Alaska fishing and agricultural businesses. Despite its name, it does not take deposits or offer other services commonly provided by banks.
"We're a creature of the state, but we're not owned by the state," Delano said. "We're limited by statute in what we can and cannot do."
CFAB is a financing cooperative owned by its members, most of whom are previous borrowers. To obtain a loan, the borrower must buy $100 in voting CFAB shares plus nonvoting shares worth 5 percent of the loan amount. Depending on how well CFAB performs, it returns a portion of its margins to shareholders. After loans are paid off, it often buys back the shares. CFAB is governed by a seven-member board, which includes five people elected by co-op members and two appointed by the governor.
The purchase of shares by borrowers contributes to the bank's capital, Delano said. CFAB issues loans from its own capital, which now totals about $19 million, and also from money borrowed from CoBank, part of a farm credit system established with federal seed money.
To date, nearly all of CFAB's loans have been to commercial fishers and processors.
"When you look at the fishery and the history of fishing the last couple of years, there is some risk with that heavy a concentration," Delano said.
The old loans are being paid off, and now, people seem reluctant to borrow for commercial fishing-related ventures, he said.
"Perhaps people are looking at the fisheries and not knowing whether they'll really be able to fish, what fisheries are open. People are reticent about getting into the fisheries not knowing what the price will be, not knowing how much of the resource will come back," Delano said. "I'm not saying it's in trouble, but they certainly have their ups and downs. Look at Cook Inlet. They got back a third of what they were expecting (for sockeye salmon) this year."
CFAB's loan portfolio, which once totaled $130 million, now totals just $25 million. In January, CFAB asked members whether it should broaden its portfolio. Roughly 25 percent responded, and 82 percent of those approved. Members' comments reflected commercial fishers' misgivings about the sport-fishing industry.
"Slightly over half of the responses incorporated comments. The overarching theme of those comments was apprehension or caveats concerning potential CFAB support of charter boat or other sport-fishing activities," says a message to members from CFAB chairman Alan D. Otness and president Edward E. Crane.
However, Otness and Crane were positive about diversification.
"Over time, we expect that CFAB's gradual move into diversification will have the desired and intended results: Better utilization of resources of all kinds, lessened vulnerability to the downswings of the commercial seafood business, more stable cash flow and reduced sensitivity on the part of auditors, examiners and lenders," they wrote.
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