Member Business Lending Environment Lends Itself to CUSO Opportunities

With shrinking margins, competition, product demands and the regulatory climate, the credit union industry has looked for additional avenues to contribute to the bottom line as well as search for complementary ways to deliver value to their membership. It has become increasingly clear, during the last two years, that member business lending is a product that is here to stay and will help meet the needs of the membership as well as the credit unions. It’s also become increasingly clear that a key source to proliferate a “fast to market” approach to this member demand would be utilizing the resources of CUSOs because as a resource, they allow credit unions to begin offering business loans to their members without developing the needed infrastructure required to appropriately support business lending programs. The membership at large is benefiting from the business lending alternatives that credit unions present. It’s been a wonderful evolution for our industry and certainly extends a menu of services to the members not previously available. With the downsizing of companies and core sponsor groups, credit union members, as they become business owners and entrepreneurs, have new found business needs. The credit union industry, although fast developing, has been slow to respond to this segment of their membership. Utilizing CUSO services allows credit unions to enter into the business services market quickly and in a safe and profitable way. Typically, a full turnkey CUSO, such as Business Partners, does all the work so your credit union may take advantage and participate in business lending. Whatever the environment, it makes good business sense to have as many lending options as possible. Utilizing the services provided by a CUSO allows credit unions to be brought together to provide beneficial products that allow credit unions to diversify their loan assets while not having to invest in additional staff. CUSO’s, once again, are a testimonial to this collaboration. CUSOs make business lending a viable option for any credit union, at any size, by providing the credit union members with access to MBL products in a centralized lending environment. The centralized lending environment allows all participating credit unions to be rewarded with increased efficiencies and economies of scale. This make sense since the opportunity will assist credit unions to develop industry and nationwide underwriting standards in an effort to promote the knowledge base of credit union executives as well as extending the potential opportunity to support future securitization efforts for CU’s. Credit unions that utilize CUSO’s will be rewarded with a quick start-up and product delivery, increased loan portfolio, enhanced liquidity options as well as the ability to generate core deposit relationships and additional service opportunities. A large part of the infrastructure is the technology required to originate, process and business lending and deposit needs of the membership. Utilizing a CUSO allows the credit unions to leverage the software and hardware needs specifically required for business services. The cost to recruit, train and retain the team to offer business services is definitely a costly part of the infrastructure. This element is absorbs a lot of resources and staff are constantly at risk for being recruited as more credit unions enters the business services market. The future challenges associated with business lending will include the regulatory climate as well as the ability to compete with other financial service providers. The NCUA has recently amended the Member Business Lending regulations allowing greater flexibility for credit unions. This flexibility will allow credit unions to better support the business needs of our membership while providing the credit union with the distinct ability to compete with other financial institutions. One of the changes allows credit unions the ability to continue to service their own members in the business services environment while generating income from participations purchased. The participation vehicle allows credit unions to invest in loans that provide income for their credit union and as a tool to invest excess liquidity. During the past few years, many credit unions have grown rapidly as a result of the flight to safety syndrome and their members do not have the loan appetite to offset the rapid share growth. The recent changes to the MBL regulations do not eliminate the PCA factor. The PCA regulations will continue to prevent and safeguard many credit unions from purchasing participation interests as it impacts their PCA ratios. The expansion also allows CUSO’s to originate loans. Credit unions have long leveraged the cooperative environment when special expertise is required. The credit union industry is well known for its ability to collaborate and do so in the member business lending environment. This new ability will allow credit unions to offer business loans to their members while utilizing the expertise of experienced business lenders, thereby providing service with a safety and soundness emphasis. Overall, the expanded authorities will require credit unions to place more prominence on monitoring credit risk and reputation risk by diversifying and stratifying their portfolio. Employees, more than ever, must be more experienced while conducting the expected due diligence when offering MBL’s. Credit unions will need to exercise greater prudence when choosing who they do business with and who they partner with. Consequently, the expertise required will need to be more meticulous and stringent in regard to underwriting, servicing and loan review. More importantly, the responsibilities are critical to protecting and safe guarding the credit unions future interest in an attempt to prevent or minimize loan losses. As the business service needs grow, this segment will see exponential growth due to the additional credit unions offering the lending, deposit and miscellaneous services requested by credit union members. The small business lending and deposit business will be a driving force for credit union growth. By helping small businesses, credit unions can help their communities and generate benefits for members. An additional reward is the ability to build bridges between your business members. This ability is generated by extending contacts within the credit union membership. A print company may have the need to utilize the services of a financial advisor; both are members and may benefit from the relationship the credit union can “bridge”. This ability is what credit unions have done successfully for years, work in partnership.