By Jim Devine
You can’t review what you don’t know. Yet, when it comes to member business lending, many credit unions try to do just that.
Whether completed in house or by utilizing third-party underwriting services, complex business loans require a very thorough underwriting process to properly evaluate the related risks of repayment. Assuming the loan is approved, the underwriting effort must be backed up with a very comprehensive, timely and anticipative credit administration effort.
However, at many credit unions, senior staff members who serve on MBL review committees have had little if any experience underwriting business loans. Few have attended specific training programs to improve their MBL underwriting and related credit administration skills. In addition, many internal staff responsible for MBL activities have limited prior experience and have also not attended significant training.
This lack of knowledge leaves credit unions and their portfolios vulnerable. Because the average business loan is for one quarter million dollars, you literally can’t afford to make, or not catch, mistakes.
Regulators are scrutinizing MBL activities very closely. In recent years, I have spent a lot of time facilitating MBL training for state DFI and NCUA federal regulators, and MBL program reviews during this time identified many operational problems, often due to a general lack of understanding.
Both state and federal regulators are going to require more comprehensive institutional commitments to MBL programs, and they don’t want credit unions outsourcing decision making without developing adequate, ongoing levels of internal knowledge to identify, measure, and monitor the related financial risks.
So, if you’re going to make business loans, you better really understand what it takes to do it right and you better build the skills sets to effectively manage it inside your credit union.
Jim Devine is s founder, chairman and CEO, Hipereon, Inc., Redmond, Wash.
The growth potential for business lending remains great—especially as an additional revenue source. Gain the in-house knowledge to do business lending right by attending CUES School of Business Lending, offered this spring in three one-week segments that teach Business Lending Fundamentals, Financial Analysis and Diagnostic Assessment, and Strategic Business Lending.
