Members Not Typically the Driving Force Behind Business Lending

HONOLULU-Several reasons exist for credit unions to get involved in member business lending, but individual credit unions still need to look at their unique situations and decide if it is right for them. “Probably the hottest thing going on in our industry is business services.” CUNA Vice President of Advisory Services Doug Benzine stated during a breakout session at CUNA’s Future Forum last week. However, he added, “Business services are not for every credit union.” He pointed out that credit unions look at different factors to determine if they want to get into business lending. These included gaining new capital, expanded member services, new fee income, new interest income and portfolio diversity. But when CUNA’s consulting arm goes out to counsel credit unions on business lending, seldom do the CEOs say their members are driving the credit union to business lending, Benzine said. Credit unions do have a number of things leaning in their favor when it comes to business lending. For example, Benzine said, banks in New England are pulling out of business lending for businesses under $15 million in sales. Credit unions can also provide interest on business checking accounts that banks cannot offer without elaborate sweep accounts. Additionally, in 2003, 70 credit unions offering business lending over the last five years had a 90.7% loan to share ratio in 2003 as opposed to 71% for all credit unions. Credit unions considering business lending need to look internally, Benzine suggested, at how many business checking accounts the credit union is already providing but may not realize it. An external competitive analysis is also crucial; credit unions should look at what the local market is offering. The credit union should also identify its target market and keep it narrow geographically and limit it to businesses with sales between $200,000 to $2.5 million. He recommended that credit unions just getting into business lending stay away from restaurants (because of the high turn over), golf courses, and start-ups. [email protected]