Member business loans (MBLs) were the fastest growing component of the loan
portfolio in 2004 for the credit union industry. MBLs grew 34.2 percent in 2004
to reach $12.0 billion overall. Although member business loans comprised only
2.8 percent of the industry’s loan portfolio, they will be making more of an
impact in the next few years as credit unions start or expand their programs.
Many credit unions are responding to member requests and are establishing business-lending
programs. Forty-one credit unions started programs in 2004 to reach a total
of 1,642 credit unions in the industry with outstanding balances as of the fourth
quarter. There are almost 87,000 business loans outstanding at credit unions
as of the fourth quarter with an average balance of $147,170.
Business Lending via a CUSO
Credit union service organizations (CUSOs) are helping several credit unions
enter the member business lending arena. Credit unions opting to join a CUSO
benefit from reduced staffing and back-office requirements as well as the ability
to negate the cost of establishing their own small-business infrastructure.
Northeast Member Business Services is a prime example of a
CUSO that has started in the last few months to provide member business lending
services to partner credit unions in the New England area.
Four Massachusetts credit unions took the initiative to pioneer the business
services CUSO: Workers’ Credit Union ($486 million), RTN Federal Credit Union
($373 million), Metropolitan Credit Union ($577 million) and Unified Federal
Credit Union ($157 million).
These credit unions are starting the CUSO initiative after noticing increasing
member demand. “We used to have to send people [asking for commercial real estate
loans] to the bank,” said Frederick Healey, CEO of Workers’ Credit Union. The
CUSO gives the partner credit unions the opportunity to cross-sell other products
and keep the member accounts at the respective credit unions.
Here’s how the process works. Once the CUSO and the credit union’s loan committee
approve the loan, the loan officer visits the member business to submit the
proposal. If all parties accept the loan’s underwriting and proposal guidelines,
the loan is placed on the books of the individual credit union, which then decides
whether it wants to participate a portion of the business loan to the CUSO.
Northeast Member Business Services plans to sign-up 10-13 credit unions in
the region over the next few years.
“We are looking for credit unions in which the CEO and Board really want to
be in the business,” said Scott Anderson, CEO of Northeast Member Business Services.
“There is a certain volume that you have to maintain to justify the business
model, and the CEO and Board must be fully committed to making it work.”
Several credit unions interested in member business lending are searching for
partners and information regarding risk factors, internal policies, institutional
support and other critical components of the program.
For more information, Callahan & Associates recently hosted a well-attended
webinar: Growing Your Business Lending Portfolio. Click
here to learn more information about what was discussed during that event.
There are also two published articles on member business lending: