Credit union member business lending is growing. Why?

By Mary Ellen Biery, Research Specialist, Sageworks

U.S. credit unions had strong growth last year, with membership growing at double the population growth rate and the highest earnings rate since 2005, according to the Credit Union National Association’s (CUNA) U.S. Credit Union Profile for 2012.

And while traditional lending areas for the nation’s roughly 7,000 credit unions experienced solid growth (new automobile loans increased 8.6 percent and first mortgages were nearly 6 percent higher than in 2011), a large number of credit unions are focusing attention on either starting a member business lending program or expanding their current efforts to provide loans to member businesses.

Credit union member business loan volume has increased by two thirds since June 2007, growing to $43.16 billion in December 2012 from $26.04 billion, according to data from the CUNA.

“Everybody we’ve talked to recently says that from a priority standpoint, they want to grow, and one of the ways to do so is to grow the member business lending portfolio,” says Tim McPeak, a director in the Financial Markets Group at Sageworks.

According to McPeak and other industry experts, there are several reasons for this trend. Credit unions are identifying opportunities in member business lending to:

• Increase penetration of the business market and the geographic market
• Expand relationships established during the past recession
• Diversify the balance sheet
• Diversify revenue streams
• Capitalize on competitive advantages

Credit unions see room to expand their share of the business lending market, as well as their slice of the lending in their geographic market.

At the same time, credit union member business lending represents less than 2 percent of all business loans from banks and credit unions combined. And member business loans are a fraction of U.S. credit unions’ total portfolio, representing between 6 and 7 percent of total loans every year since 2009. Further, less than a third of U.S. credit unions even offer member business loans, according to the CUNA.

However, “if a credit union wants to grow the loan portfolio, member business lending is probably the area where there’s the most room for growth,” according to McPeak.

To learn more about member business lending, including regulatory issues and how to manage risks, download the whitepaper, Member Business Lending Landscape: Managing Risk & Opportunity.