Leveraging the Power of Your Credit Union Network for Commercial Lending Success

You are not alone.

It’s important to remember this as you consider strategies for growing your commercial loan portfolio. Perhaps your credit union is near its member business lending cap, but you want to continue to serve the needs of your business members. Or maybe a long-time member is seeking a bridge loan or a construction loan for a new project, but your credit union is only able to offer permanent financing. Where do you turn?

As a credit union, you are part of a close-knit, cooperative movement. The philosophy of “people helping people,” rooted in providing outstanding service and financial advice to our member owners, also applies to credit unions helping and supporting each other around the country.

Nowhere is this collaborative approach more welcome or needed than in the commercial real estate (CRE) lending arena. We tend to see opportunity only through the lens of our individual local markets. However, trends and opportunities vary widely across geographic regions and industry sectors. According to Stephen Stein, managing director of Tauro Capital Advisors, Inc. the multi-family market is currently hot in major metropolitan areas like Seattle, Wash., Sacramento, Calif., and Orlando, Fla., but less so in many suburban and rural markets. The office real estate sector is growing in suburbia, driven by the growing popularity of coworking and employees’ desire to work close to home. Retail construction and development is struggling across the board, as suburban strip malls and shopping malls are ravaged by the Amazon effect and the closing of major retailers like Sears and Toys “R” Us.

For these reasons, credit unions must look beyond their local markets for opportunities to diversify and grow their commercial loan portfolios, while staying focused on serving the needs of their members. Here are three ways to leverage the power of your credit union network to build your commercial lending program for long-term success:

Loan sourcing: There are few better ways to efficiently grow your CRE loan portfolio than through established loan sourcing relationships with a few trusted partners. The dual challenge is in knowing which brokers, agents and mortgage professionals you can trust, and how to effectively analyze and assess a deal’s quality.

To address these pain points, some innovative business lending CUSOs have established networks of fully-vetted and trusted CRE professionals to offer high-quality loan opportunities to member credit unions. Participating credit unions provide the CUSO with an overview of their field of membership and policy restrictions, and the types of loans they will entertain. The CUSO then pre-screens each loan opportunity before offering it to its network and works diligently to match the opportunity with the credit union(s) that can best benefit.

Once a fit is identified, the credit union receives a full credit package, which it underwrites per its loan policy. If approved and closed, the borrower is made a full member of the credit union, which services the loan. Typically, the credit union, CUSO and agent each share in the origination fee charged to the member, and the credit union earns full interest on the loan. The credit union gains a new member relationship, adds a performing loan to its balance sheet and captures some additional fee income as well.

For example, at CU Business Group we recently facilitated the closing of a $960,000 multi-family property in Cincinnati, Ohio, a $2 million condominium development in Las Vegas, Nev., and a $4.2 million assisted living facility in Bend, Ore. Credit unions within our network benefitted from these strong deals in their home markets, which otherwise may have gone to big banks or other lenders.

Loan participations: Another way for credit unions to grow their loan portfolio is through participations. Participations also allow credit unions to manage concentration risks, diversify their portfolio, and stay within the restrictions of their member business lending cap. Here are a few ways an active participation loan program can help:

As a lead lender, you can tap a robust network of hundreds of credit unions to meet your member’s borrowing needs, even if the request is above your loans-to-one-member policy limit or the loan amount is outside your risk appetite. The lead lender is required to keep just 10% of the loan on its books, enabling you to sell off up to 90% of the loan to one or more participating lenders. The lead lender maintains the member relationship and handles all loan servicing, typically in exchange for a fee assessed to the participating credit unions. Participation servicing can be outsourced if the lead lender does not have the system capabilities to handle the potentially complex record-keeping.

If your credit union desires to be a participating lender, you select only those deals that fit your policy and risk appetite. From a regulatory standpoint, as long as the borrower is a member of the credit union taking the lead position, any credit union anywhere in the country may choose to participate. In addition, as of the NCUA’s recent regulatory changes, purchased non-member loan participations no longer count toward a credit union’s MBL cap, so you can grow and diversify your commercial portfolio while continuing to serve your own business members unencumbered.

The key to a successful participation program is having access to a robust, active network of buying and selling credit unions. This can be challenging for individual credit unions. Fortunately, several CUSOs have established regional and national participation networks, handling much of the upfront due diligence and providing more confidence for credit unions. Some also help market the transaction, select the right fit between lead and participating lenders based on policy limitations, risk appetite and field of membership considerations, and provide solid guidance based on years of experience with hundreds of transactions in multiple markets.

Correspondent lending: A third option for credit unions looking for help in managing and diversifying their loan portfolio is through correspondent lending relationships with qualified wholesaler lenders. Through a correspondent lender program, credit unions can offer competitive financing rates and terms to members that have specialized, relatively complex needs without taking on additional credit risk. Such a program also helps credit unions minimize concentration risks by moving policy-limited asset classes off the balance sheet.

So how does correspondent lending work?

If your credit union is a member of a CUSO that offers a correspondent lender program, it’s easy to get started. Typically, there is no cost for credit unions to join the program and the CUSO provides all marketing materials to promote the service. The credit union’s loan officers are responsible for identifying potential opportunities and passing them on to the CUSO, which then works directly with the wholesale lender and the member. Once the deal is closed, your credit union receives a finder’s fee, typically a percentage of the total loan amount.

It’s important to remember that if your credit union is looking to grow its commercial loan portfolio, reduce concentration risk, and provide your business members with the options they need, you have alternatives. Talk to your business services CUSO about leveraging the power of the credit union network to achieve all your goals.

Dina Kroshkin is Vice President of Loan Originations for CU Business Group, LLC. She can be reached at 971-244-6352 or dkroshkin@cubg.org.