Business Services Poised to Diversify

Credit unions, especially those already making commercial real estate loans, may be aiming to expand their business services in 2017, buoyed by more favorable regulations and market demand, says Larry Middleman, president/CEO of CU Business Group, Portland, Ore.

Polling participants at its recent national conference, CUBG found that a majority (54 percent) continue to focus their business services on commercial real estate lending, but some credit unions are looking to diversify with more lending to support business operations (19 percent) and full-service deposit offerings for business members (15 percent).

“These are real growth areas for credit unions, and they have lots of capacity to grow,” Middleman notes. “Commercial and industrial loans go hand in hand with real estate lending. That is what a business needs—working capital, cash flow and deposit services.”

Credit unions looking to expand the scope and scale of business lending will get a boost come January 1 in the form of member business lending rule revisions by the National Credit Union Administration. The revised regulations give credit unions more discretion in setting risk parameters, such as loan-to-value limits and requiring personal loan guarantees. This flexibility offers “a breath of fresh air and the ability to grow,” he says. “The general rules of risk taking will now be set by the credit union instead of limits imposed by examiners.”

Credit unions looking to expand business services may need to recruit experienced professionals and invest in technology and vendor support, especially in rolling out a wider range of deposit products, Middleman says.

“Cash management and sweep accounts, remote deposit capture for businesses, and other sophisticated services may require add-ons to the core system and a higher level of expertise to work with business members,” he notes.

The leading return on that investment may be in building more robust relationships with members who hold their personal accounts with the credit union but are reluctant to do their business banking there if they don’t have access to a full range of commercial lending and deposit services.

“A loan on a building is familiar and fairly straightforward, but it doesn’t bring the rest of that relationship over,” Middleman suggests. With a full suite of business products, “the credit union will have an easier time going after the expanded business of existing members.”

Expanding business services provides a reliable path to build deposits and grow fee income, he adds. “With local management and a cooperative structure, credit unions have a great value proposition to offer to small and mid-sized businesses, so I don’t expect the growth of business services to level off.”