Many signs point to small business and commercial real estate lending as a good next step for credit unions.
By Ryal Tayloe
When I look at the marketplace, I see many indicators suggesting that credit unions' role in offering member business loans has already improved and will continue to grow. For example, the second graph in this Callahan and Associates report shows member business lending was much stronger in 2013 and 2014 than in prior recent years. Additionally, on June 18, the National Credit Union Administration approved a new business lending proposal designed to bring significant changes to oversight, including the placement of responsibility on credit unions to write their own business loan policies without prescriptive regulatory limits, removing loan-to-value limits, and removing the cap consideration for participation loans. These changes are currently out for a 60-day comment period. Meantime, all signs point to the outcome of increased opportunity for credit unions to expand member business lending activity, while also putting the burden of sound policies and processes on the credit unions making business loans. The economic downturn may have presented the most promising opportunity for credit unions to realize they can do much more! As banks tightened their credit requirements and, even still today, tend to be finicky about lending to small businesses and commercial real estate developers, credit unions have continued to do what they do best – serve member needs and focus on improving the overall member experience. Credit unions have become increasingly aware of the number of member business owners wrongly placed in products and services that are traditionally geared toward consumers. Additionally, as the community bank market continues its path of consolidation, credit unions are picking up talented, displaced bank employees with commercial lending expertise. Since the economic recession in 2008, business loan growth has flourished in the credit union industry. Large lenders' and community banks’ inability to satisfy the funding needs of small business owners and commercial real estate developers has presented credit unions with an excellent opportunity to get in on the action. Being viewed as a reputable commercial lender in your market can extend to other points of value beyond just the loan opportunity:
- greater visibility in the community due to providing necessary support to business owners in the form of quality financing options;
- growth in the overall loan portfolio as a new source of profitability, subsequently increasing revenues as well as dividends returned to members;
- expanded member relationship potential as well as expanded business member wallet share; and
- balanced portfolios in offsetting periods of slower demand for consumer credit and other retail lending products.
Despite some banks having eliminated commercial loan products or severely limited their availability, local businesses have not ceased their dependency on the funding to help them build new facilities, hire new talent, purchase goods or simply maintain positive cash flow. Credit unions must thoughtfully examine these lending opportunities to enter the market or expand current programs. If not yet ready to jump all in, consider participation programs to diversify portfolio risk and maintain current regulatory limits or even build out new expertise without bringing in all the required resources. There is plenty of commercial lending market share for credit unions to capture. It’s time to get started.
Ryal Tayloe is VP/credit unions for Wilmington, N.C.-based nCino. Through its flagship operating system, nCino leverages the power of Salesforce to provide financial institutions with superior transparency and clarity into their existing loan production pipelines, portfolios and operating efficiencies across all business lines, resulting in increased profitability, productivity gains and regulatory compliance. Connect with the company on LinkedIn and Twitter @nCino. Thinking about doing more in this arena? You might wish to attend CUES Advanced School of Business Lending™: Commercial Real Estate Lending. It's slated for Sept. 21-25 in San Antonio. Subscribe to CUES Business Lending Edge, a free quarterly e-newsletter.
