When I started in credit union business lending in 2001, the numbers to live by were 12.25, 80 and 100. Credit unions were strictly limited to 12.25% of assets in total member business loans, the loans were limited to 80% loan-to-value or less, and 100% of them needed to be reviewed annually. As a result of this tight box, the industry evolved into primarily funding loans secured with real estate. In fact, December 2019 Call Report data showed over 90% of credit union commercial loan balances are secured by real estate. That focus on real estate investors leaves many small business owners out.

What's Holding Credit Unions Back?

Before joining a CUSO, I managed a credit union loan portfolio and focused on maintaining liquidity under the NCUA member business lending cap. We were forced into primarily funding real estate since our main outlet to manage the cap was in loan participations. Non-real estate, small business loans or lines of credit are virtually impossible to sell in the participation marketplace. Today's credit unions have tremendous freedom and ability to fund loans to their local, small businesses. With 45% of credit unions having a low-income designation, many may expand beyond the traditional 12.25% of total assets. Today's credit unions can also deduct any one- to four-family residential investment property loans and loan participations from the regulatory cap. There is enough liquidity in the marketplace for credit unions to make business loans. Recently, some credit unions have risen to the occasion, working through the challenges of the SBA's Paycheck Protection Program (PPP) to fund emergency loans to local small businesses. However, there is still a huge opportunity.