Business lending is one of the fastest areas of growth for credit unions, but veterans of the sector say that the key to success is focusing on the broad needs of members, not just building a bigger loan portfolio.
Much of the growth in business lending has occurred in the wake of the Great Recession, which means some lenders have limited experience with market reversals.
Business lending has higher margins than other lines, but it also has higher risks, and credit unions need to be prepared for them, said Stephen K. J. Mackowitz, who has been lending to businesses for 40 years and is senior vice president of commercial lending at Digital Federal Credit Union.
The Boston-area credit union wrote off its share of loans during the recession, but managed to squeeze out a profit even in the worst years, Mackowitz said.
“We’re in the risk business,” he said. “Anyone who says they don’t have any delinquencies is not doing their job.”
Among all credit unions, business loan portfolios were $66.6 billion at the end of 2016, including unfunded commitments, up 15% from the end of 2015. It was the strongest growth since 2008, according to NAFCU.
Callahan & Associates, a credit union consulting firm in Washington, D.C., tracked business loans granted or purchased at $21.6 billion in 2016. Production grew 15% in 2016, the fastest growth since 2012.
For many credit unions, successful business lending begins with relationships with members. “We have purposefully moved away from strictly transactional lending to relationship lending,” said Diana Gray, BECU’s vice president of business and wealth services. “We began to see very strong results.”
“Never for a moment do we take this market for granted,” she said. “Now is the time to look ahead and prepare for lower levels of real estate activity.”
Scott R. Everett, Wright-Patt’s vice president of member business services, said the credit union counts its loans differently, but the trend is the same: up.
“At this point we have the luxury of saying no as much as yes,” Everett said. “We’re trying to grow the business, but we’re trying to do it in a more prudent manner.”
The credit union has been trying to lower costs and increase its rate of applications to closures by using a scoring model on small loans. It allows lenders in the branches to enter key data that can be used to give potential borrowers a quick answer on whether the credit union can lend them money.
Check out the full story in the upcoming March 15 issue of CU Times.
