Member business lending: Opportunity for credit unions
In March of 2011, only 30 percent of credit unions provided credit to businesses, according to the National Credit Union Administration (NCUA). However, member business lending has increased consistently as of late and the trend is expected to continue. This is in large part due to member business loans (MBLs) carrying a higher interest rate and higher dollar-weighted average loan amount compared to other options.
There are millions of small businesses, and credit unions tend to only compete with community banks since large banks aren’t particularly interested in the market. Of course, there is greater risk with MBLs since the loan amounts are higher. And the potential lost interest is higher as well. That said, they should continue to be popular among credit unions, assuming maintenance and underwriting are conducted properly.
According to Sam Han, director of internal audit at Andrews Federal Credit Union, there are several points that are necessary to be successful in member business lending. In an article on CU Management, he mentions that business loan officers must have financial statement knowledge, business expertise and professionalism. He also states that comprehensive and extended analyses of member businesses should be conducted initially, and on an on-going basis.
Han notes, “MBLs may be the ‘final frontier’ when it comes to expanding CU’s opportunities to generate revenue through lending.”
For more information on how the MBL landscape has changed, what risks come with MBL, and how to mitigate those risks, download the whitepaper, titled: Member Business Lending Landscape. Or, register for the upcoming webinar, titled: How to Manage Risk in Member Business Lending.