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The outlook for credit union member business lending is sunny.
Callahan & Associates reported that 34.4 percent of U.S. credit unions offered member business loans, as of September 2015. This is up 86 basis points from September 2014.
Total MBL outstanding balances topped $50.9 billion, up 12.29 percent year over year from September 2014. Although member business loans are growing in size and popularity, these loans account for only 6.5 percent of the total industry loan portfolio, the second smallest loan product, followed only by credit cards.
This news came before the National Credit Union Administration and the Small Business Administration announced they have partnered to increase SBA loans. Plus, last month the NCUA Board modernized its business lending rule.
“With this final rule, we begin a new era,” NCUA Board Chairman Debbie Matz said in the announcement. “Today, the vast majority of credit unions making these loans have well-established member-business lending infrastructures and risk management in place. So, it is time to transition from prescriptive limits to over-arching principles that will provide greater flexibility for credit unions to serve more member businesses.”
Key changes in the final rule include:
- giving credit union loan officers the ability, under certain circumstances, to not require a personal guarantee;
- replacing explicit loan-to-value limits with the principle of appropriate collateral and eliminating the need for a waiver;
- lifting limits on construction and development loans;
- exempting credit unions with assets under $250 million and small commercial loan portfolios from certain requirements; and
- affirming that non-member loan participations do not count against the statutory member-business lending cap.
Credit unions across all asset ranges and geographical regions topped the charts in MBL growth in the third quarter of 2015, reports Callahan. (View the top 100 member business lending credit unions.
“Credit unions participating in member business lending outperformed credit unions that do not offer member business loans across a variety of metrics, including return on assets, delinquency, and member and share growth,” said Sam Taft, director of industry analysis at Callahan & Associates in a press release last year. “The most notable difference is loan growth. Credit unions that participate in MBL expanded their total loan portfolio 11.8 percent annually, compared to 6.2 percent for credit unions that do not.”
Member business loan penetration at credit unions currently stands at .22 percent, according to Callahan & Associates.
Credit unions are also outpacing community banks when it comes to business loans. SNL Financial reported that “business lending at U.S. credit unions has skyrocketed during the past five years while the nation's community banks have seen that lending line basically flatline.”
“Growth in credit union business loans from the third quarter of 2010 to the third quarter of 2015 was 66.47 percent while commercial and savings banks of less than $5 billion in assets saw just 0.43 percent growth during that period. Year-over-year growth at Sept. 30, 2015, was 12.41 percent at credit unions but only 0.22 percent at community banks,” the report continued.
