Taking a `Proactive' Approach, Thinking Like a Small Business Owner Key to Successful MBL Program, Experts Suggest

ORLANDO, Fla. – The small business market today is quite different from what it was a few years ago, much to the advantage for credit unions that are considering offering member business loans Kevin Thompson, vice president, product development for CUNA Mutual Group’s Credit Union Financial Solutions, and David Dunn, director of operations for CU BizSource, shared their member business lending insights during a breakout session at CUNA Mutual’s recent Discovery Conference. He said the benefits of member business lending include loan portfolio growth with simultaneous increases in margins and profitability; stronger relationships with existing or potential SEGs; and ancillary growth in business services such as payroll processing, merchant services and corporate credit cards. Credit unions currently have more than $11 billion in member business loans outstanding, and that amount is growing by 20% annually. Of the more than 50 attendees at the Discovery session, at least a dozen were from community-chartered credit unions but the majority was SEG-based. The latter group, Dunn said, have strong leads to a successful business lending start-up given these established relationships. “As a former commercial lender, I (would have appreciated) those types of relationships,” Dunn said. Even before credit unions consider offering member business loans, they should be reminded that business lending is tightly regulated, Thompson said, referring to NCUA Regulation Part 723.16, which caps a credit union’s member business loan volume at 12.25% of assets. “A successful member business lending program leads to constraints, such as the NCUA cap and the need for more liquidity. Fortunately, credit unions can find relief in the secondary market,” Thompson said. Thompson highlighted a third-party provider investment pilot program approved in March by the NCUA Board to enhance member business lending opportunities for credit unions. CU System Funds was developed by CUNA Mutual to purchase member business loans from credit unions and sell shares in the fund as investments to interested credit unions. The program aims to improve liquidity for member business loans by allowing originating credit unions to sell those loans to the funds to lower their balance sheet risk. Three very diverse credit unions were on hand to share their perspectives on member business lending. The $64 million Mennonite Financial FCU serves the mostly Amish and Mennonite communities and has been successful within these unique groups. The CU has 166 MBLs totaling $12 million and has expanded its business services programs to loan participations, other deposit services and selling commercial mortgages to a Mennonite insurance company, said Larry Miller, president/CEO. Loan participations are sold not only through CUs but community banks for the $649 million Royal CU, which has $35 million in those types of loans, said Charles Grossklaus, president/CEO. Because of the growing number of start-up banks in the Eau Claire, Wis. area, CUs have to contend with them aggressively going after lending and deposit services especially among high depositors, Grossklaus said. The $2.8 billion CEFCU in Peoria, Ill. saw success in its MBL program after putting in place a business plan six and a half years after it started offering such services, said Keith Reynolds, vice president of business and wealth management. As a result, the CU’s MBL portfolio went from $40 million to $320 million; deposits went from $5 million to $50 million and 80% of new accounts are now opened by branch staff. [email protected]