Is Your Credit Union Ready to Grow Member Business Lending (MBL)?
Member business lending (MBL) has been a hot topic in the financial services community this summer, particularly as the industry awaits finalization of the NCUA’s rule changes. While credit union lending to businesses has been on the rise over the last several years, both in terms of dollars and the number of credit unions that offer MBL services to their members, the proposed changes could perpetuate further growth in this area. Credit unions would have more flexibility and autonomy for these loans and businesses would have new sources to funds needed.
For now, though, there’s a relatively small number of credit unions making loans to businesses. Only 34 percent of all 6,200+ credit unions offered some form of MBL to their members as of the close of the second quarter this year, and yet those loans totaled nearly $49 billion. This data comes from Sageworks Bank Information.
It’s likely no surprise that larger credit unions are making the biggest impact in MBL. More than 78 percent of credit unions with more than $100 million in total assets offered MBL to their members for the same period of 2015. Those institutions carried nearly all of the MBL loans — $47 billion of the total.
Credit unions with less than $100 million in total assets accounted for only about $1.5 billion in total MBL as of June 30. Hometown Credit Union, based in Kulm, N.D., was the top business lender among smaller institutions during this period. Hometown, which specializes in agriculture lending, has more than 3,000 members and has loaned more than $75 million in MBL (roughly 86 percent of their total lending). The Midwest proved to be a fertile source for this area of lending with Farmway CU in Beloit, Kan., as the number two-ranked small credit union, with nearly $40 million in MBL. Archer Cooperative CU placed third for the quarter, with more than $35 million.
While overall lending at CUs has also been on the rise in recent years, MBL and the regulatory changes pending represent a unique opportunity for credit unions to organically grow their loan portfolios. With many credit unions just beginning to develop or on the verge of expanding their member business lending programs, it is important develop or tighten a sound MBL strategy to ensure long-term success in managing risks. There are four critical points to keep in mind as that strategy takes shape:
• determine how to measure success of the program,
• evaluate the level of capital needed to account for the added risk,
• analyze different approaches for growth, and