Credit Union Business Lending Trends: A Year in Review

If you work in credit union business lending, the last two years have been a roller coaster that will fuel you with stories for years to come. At our company’s monthly staff meeting in March 2020, we made final arrangements for everyone to work from home. Later that day, I carefully crafted an organizational chart with the anticipation that lending activity would grind to a slow pace for a long period of time and layoffs would be necessary. I could not have been more wrong as 2020 and 2021 were record business lending years for the credit union industry. With the NCUA Call Report data released for year-end 2021, we have an opportunity to dig deep into the numbers to see just how busy credit unions were assisting members with small business and commercial real estate investment needs.

Originations Soar, Funded Loan Growth Is Modest

2021 was a great year to be a business loan originator. A total of $41.9 billion in loans were originated during the year by credit unions nationwide. This is up nearly 40% in a single year compared with 2020 and an amazing 70% higher in annual loans originated in 2019. The largest credit unions, those with over $10 billion in assets, contributed $2.45 billion of the nearly $12 billion increase in business loans funded.  Forty-five of the 50 states saw increased business loan activity. The actual number of loans funded among credit unions increased a modest 4%, which was aided by the average size increasing $135,000 to $524,000.

A Highly Competitive Market Drives Aggressive Refinancing

When you look at the overall portfolio figures for credit unions, the trends indicate that the business lending marketplace was highly competitive and credit unions needed to refinance many loans to keep them in the portfolio. Business lending portfolio balances increased a healthy $15.5 billion, or nearly 19%, in a year. More impressive is that since December 2019 credit unions have increased their business lending portfolio by $26.6 billion, or 37%. This $15.5 billion in growth on $41.9 billion in loans funded proves out what I hear from many of my colleagues. Without prepayment penalties in place, credit unions had to fight hard through aggressive refinances to maintain their business members as banks and other lenders fought to win business from credit unions.

Business Loan Participations Increase, Surprisingly

Does your credit union have plenty of liquidity? Are you actively looking for loans? If so, you are in the same boat as virtually every credit union I talk to when it comes to participation loans. While it seemed like many of us struggled to purchase loans from various sources over the past year, the participation marketplace was surprisingly strong for business lending. Over $5.9 billion in business loan participations were purchased in 2021 by credit unions. That figure was up 37% from 2020 and 87% from just two years prior. The average participation transaction in 2021 had an average size of $572,000.

Credit Quality Remains Low Due to Legacy Portfolios

While business loan portfolios soar at credit unions, the overall industry’s credit quality remains at rock bottom levels. While having even one delinquent business loan is never fun, the industry as a whole carried a reported delinquency of 41 basis points at the end of 2021. However, a deep dive into the delinquency figures showed a more promising outlook as no less than 20% of the industry’s delinquency is tied to legacy taxi medallion portfolios, which are concentrated in only a few credit unions. The industry charge-off figures for 2021 represented just 6 basis points of the industry’s end of 2021 portfolio figures with only 14 credit unions charging off total loans in excess of $1 million.

Paycheck Protection Program

I would be remiss if I didn’t mention the only loans business lenders in the industry are looking forward to having zero dollars in – the SBA’s Paycheck Protection Program. At the end of 2020, the industry held over 163,000 of those loans for $7.2 billion. Even with another herculean effort in early 2021, the industry has reduced PPP loans funded to 43,000 loans for $1.8 billion. This number will certainly continue to plummet during the year. I know I speak for the rest of the industry when I say it was an honor to assist our country’s small businesses in their time of need. We certainly hope the program never comes back again.

A Banner Year Assisting Local Businesses

Overall, 2021 was a banner year for credit union business lending. With rising rates and economic uncertainty, even figures that come close to 2021 will result in strong gains for credit union loan portfolios and countless small businesses that will have access to the financing they need to succeed. Credit quality is historically low and, with the pullback of government stimulus programs, a return to low, but closer to normal levels, of delinquency and charge-offs may be on the horizon. When you look back at how far credit unions have come in assisting the local business community compared to five, 10 or even 15 years ago, there is a lot to be proud of as an industry.

Mark Ritter is CEO of the CUSO Member Business Financial Services and its subsidiary, Nu Direction Lending, in Philadelphia, Pa.