Business Lending: How Credit Unions Can Raise Their Profile

Credit unions and small- to mid-size businesses may be a perfect match

By Miranda Glancy
Originally published by Equifax Insights

As credit unions look for ways to expand offerings and diversify asset portfolios, one area that is often overlooked is business lending. Many credit unions have avoided business loans altogether, focusing instead on individual members, and occasionally, on pass-through entities that involved their members.

However, over the past year, business loans by credit unions grew by more than 23%[1] – possibly because new rules adopted by the National Credit Union Administration in 2017 now allow credit unions to set their own underwriting requirements and establish their own business lending policies. This change is allowing credit unions to compete in the business lending arena — with positive results.

For small businesses, in particular, credit unions can offer a very attractive alternative to banks. Credit unions may offer lower rates, faster loan approval, higher rates on savings and better customer service. Small businesses often want loans to expand their business or pursue new opportunities, and they may even pay a higher rate to have their loan application processed more quickly and without the hassles of traditional paperwork.[2]

In terms of loan size and risk profile, credit unions and small- to mid-size businesses may be a perfect match.

According to a 2016 survey by the Federal Reserve:

  • More than 55% of small business owners are looking for loans of $100,000 or less
  • 65% of those were applying for loans to expand their business or pursue a new business opportunity
  • Small businesses also report a high rate of lender satisfaction with credit unions: 78% reported they were satisfied with their credit union experience, versus 61% for large banks and 46% with online lenders

Technology lends a hand for business lending

How can you find new business lending customers? Right at your fingertips, as up to 21% of members could also be small business owners, according to Equifax research. A data linking solution could help uncover connections between individuals who are also owners or principals of small businesses. This insight could uncover opportunities to offer personalized customer service or to market small business loans.

Some credit unions are finding that digital technologies help them improve their business lending strategy. Due to high administrative costs, smaller loans typically aren’t all that attractive to the big banks. But for credit unions, they can be a cost-effective addition to the loan portfolio. By automating certain aspects of loan application, processing and servicing, credit unions can lower the cost of originating smaller loans.

Credit unions help support the backbone of their communities. Therefore, raising your profile and increasing that support through business lending is a strategy that can make good business sense. To learn more about how credit unions can expand commercial lending offerings, contact us.

[1] Jim DuPlessis, “Loan Growth Revs Up—Yet Again.” Credit Union Times. June 26, 2018 [CUSO’s Credit Union Trends Report]

[2] Roy Urrico, “Artificial Intelligence Helps Credit Unions Book More Loans,” Credit Union Times. January 2, 2018.