For Credit Unions Looking to Grow, Commercial Lending Could Be the Answer
According to data from Jack Henry, 72% of credit unions plan to expand
services for small businesses within the next year. While credit unions haven’t always been known for their
commercial offerings, they have a lot of untapped opportunities to grow among
their business members, especially when it comes to lending.
Why now?
Many credit unions are looking to diversify right now. Auto
loans and other consumer lending have been the credit union’s bread and butter
for years. However, recent economic conditions have proved that consumer debt
isn’t always a sure thing. When money gets tight, people aren’t buying cars and
houses like the credit union would want them to.
Commercial real estate or commercial and industrial
(C&I) lending is a different ball game that brings in more revenue for the
credit union. Businesses come with higher loan amounts, bringing more interest
income.
What’s holding them back?
Most credit unions have not needed to step into the
commercial lending realm until now. Especially with the competition they see
from banks in this space, many credit unions may not have seen that it was
worth it to even try. However, credit unions with low-income designations can
often compete toe-to-toe with banks for their members’ commercial business.
Another key issue holding credit unions back is their
regulatory cap. There is a 12.25% limit on commercial loan volume, per the NCUA. To alleviate this, credit unions can
sell loans on the secondary market when they reach their regulatory cap, which
converts them from loan assets to cash assets.
What should they know?
For the credit unions that want to get into commercial
lending, the name of the game is efficiency. Especially when just starting out,
credit unions may have lean teams or a smaller pool of resources to work with.
Technology can eliminate time-consuming work and keep teams moving forward
quickly.
Manual data entry and document creation can be incredibly
time-consuming for commercial lenders. When technology can automate this step,
even small teams can make fast decisions that help keep them competitive with
bigger banks that have more resources.
Additionally, technology that is configurable to the credit
union’s specific policies and processes can help make the work more
straightforward for less experienced lenders, allowing the commercial lending
business to get off the ground quickly and begin generating value almost
immediately.
The credit unions looking to grow their small business
services should explore commercial lending. With the right technology partner
and configurable solutions that promote efficiency, even lean teams can launch
quickly and see measurable results that not only help local businesses, but
support growth for the credit union.
David Eads is CEO and cofounder of Vine, a commercial lending accelerator for banks and credit unions.