Market Conditions Benefit Credit Union Business Lending

As big banks tighten their commercial lending standards, credit unions can become a vital credit source to help small businesses grow.


“The credit union difference” is an extremely important loyalty factor in terms of service and relationships for the 89 million credit union members in the nation. Members trust their credit union to look out for their best interests in a fashion that they cannot receive at other financial institutions. The individual member, however, is not the only group that can benefit from the credit union difference. According to the Federal Reserve, 55% of banks have tightened their commercial lending standards. As many large banks retreat from this market, credit unions are in a strong position to leverage their advantages to help small businesses as well.

Stepping Up as Others Step Back

In June, the Washington Post ran a story with the headline “Number of Small Business Loans Increases.” Just one month later, the New York Times had a headline that read “Worried Banks Sharply Reduce Business Loans.” Why such a disconnect between these two headlines? Large banks are retreating from this business and many believe that credit unions are in a position to fill the gap. This is not the first time we have seen headlines of this kind. Over the last year there have been headlines about larger banks moving away from real estate lending and student lending, two business lines where credit unions who have stepped up to fill the void have found great success. Business lending may merely be the next chapter in this book.

Credit union member business lending has been a rapidly growing component of the credit union loan portfolio. As of March 2008, credit unions had $23.4 billion in outstanding member business loans, representing a compound annual growth rate of more than 25% over the last 10 years. The market is primed for these trends to continue to increase.

A leading component of this growth in balances is the healthy increase in the number of credit unions that offer member business loans. As of March, 2,009 credit unions offered member business loans, an increase of nearly 500 credit unions over the last four years. Although credit union business lending continues to grow, there is still plenty of opportunity for credit unions to increase their market share. As of March, credit unions accounted for approximately 1.5% of the $1.5 trillion in business loans outstanding at all U.S. financial institutions.

What Products and Services are Businesses Looking For?

As businesses seek alternative credit sources, credit unions can look to increase market share by building strong relationships with local businesses. Part of this relationship building comes through serving the individuals who run these small businesses. According to a survey conducted through Callahan's Internet Strategy Consortium, 56% of members who have individual accounts said they were “very likely” to switch their business account over to the credit union as well. Another component of deepening this relationship is offering the types of products and services your member businesses are most interested in using. According to the Internet Strategy Consortium, the two products with the highest interest are business checking and business credit cards which received interest from 77% and 54% of respondents, respectively.




Aug. 11, 2008


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