Credit Unions Barely Scratch the Surface of Commercial Lending

Credit unions’ lending outlook continues to be strong. Loan balances have grown at or near double figures over the last four years, and CUNA reported that credit unions are more than doubling the pace of all other lenders. This milestone can partially be attributed to an increase in automobile loans, which account for more than one-third of credit unions’ loan portfolios, while first-lien mortgages remain the heavy hitters. Although credit unions have been successful in facilitating auto and home financing, too many institutions are still missing a significant opportunity by remaining hesitant to embrace commercial lending.

As credit unions look toward adding the next trillion to their portfolios, savvy institutions are considering how they can best derive revenue from the largely untapped commercial lending market. There is good reason credit unions have traditionally shied away from this segment – commercial loans are notoriously tedious, manual and paper-based. However, this no longer has to be the case. If credit unions adopt the right mindset and technology, they can make commercial lending a competitive differentiator.

Members are a credit union’s best renewable resource. So, the commercial lending process can’t be viewed as just a linear end-to-end offering with a beginning and conclusion; such an outlook provides little forward potential or opportunity for sustained growth. Lending to businesses is about building an ongoing, renewable relationship rather than a single transaction that is forgotten once complete. Failing to adjust this mindset risks solidifying an ongoing relationship with businesses and eliminates a credit union’s ability to best serve community leaders who are likely already part of their membership. A relationship-based lending approach opens the door for credit unions to expand their portfolios and boost profits with both larger commercial businesses as well as small businesses.

Once the appropriate mindset is established, it’s time to tackle the technology challenge. There’s a perception that credit unions lack the modern technology and processes required to efficiently and profitably fulfill and service these often complicated loans. It does no good to court a potential business member if the credit union doesn’t have the tools necessary to meet modern commercial client expectations. It’s one thing to turn down a relationship because of lending criteria, but something entirely different to lose business because systems are not in place to manage processes and expectations.

One of the largest underlying causes of this technology disconnect are disparate systems that leave data in silos, and therefore impossible, or difficult at best, to access. Credit unions have a wealth of information about business members available to them, but if this data is disorganized and scattered, it prevents the institution from gaining a comprehensive view of the member. Instead, data needs to be kept in a centralized platform that’s integrated with other critical systems, including the loan origination system, core business data and other technology used for underwriting and documenting loans. This will empower credit union employees with more visibility and insight into borrower relationships for their lifetime value, equipping them to make better, more accurate loan decisions. When a credit union does not have the complete borrower picture, the lending lifecycle is jeopardized.

However, such a sophisticated data integration strategy means little without a quick, easy and convenient borrower experience. Consumers today expect all interactions to be instant and digitally optimized, so credit unions must be able to deliver a modern lending experience to compete. This includes offering an online application as well as automated decisioning and renewal options that provide feedback within minutes, and also have the ability to digitally upload relevant documents and information with ease. Forward thinking credit unions are adopting an intelligent, centralized platform made available to lenders on mobile devices to automate and digitize the lifecycle of commercial loans and better match the speed, ease and convenience that borrowers expect. Such workflow changes can also decrease costs and boost profit margins, while giving lenders more time to engage the member on a personal level.

Commercial lending is often the last paper-based process remaining in an institution, which could be why credit unions have historically refrained from expanding into the sector. An updated approach is necessary to successfully cater to this profitable and largely untapped market. A digital loan lifecycle management system that facilitates relationship-based lending can provide an enhanced experience for both the borrower and lender with powerful risk management tools, process automation and business services that help monitor and manage commercial portfolios. As credit unions continue their competitive momentum in the lending space, those that give commercial lending the resources and strategic consideration it deserves will be well-positioned to grow their portfolios and better serve business members.

Pat True is Senior Risk Analyst for ProfitStars. He can be reached at rtrue@profitstars.com.