Credit unions are filling the void left by banks to fund business loans
Banks have curtailed the amount of new commercial loans they will finance since the financial crisis began in 2008. Burned by bad commercial real estate loans, and struggling to meet regulatory pressures to reduce the concentrations of real estate loans in relation to reserves, regional and local banks have pulled back on business lending.
Credit unions have historically focused on consumer loans and accounts. Credit unions have also traditionally been more conservative in the types of loans they are willing to offer, avoiding risky practices such as subprime lending, and their loan portfolios were less impacted by the financial crisis than those of many banks.
Credit union executives say the business opportunities increased when banks stopped making as many commercial loans and business customers started looking for alternatives.
Credit unions, which tend to be smaller and more local than banks by nature of their member-owned business models, also tend to offer smaller commercial loans from $10,000 to about $1.5 million. Credit unions are also offering more Small Business Administration loans.
David Colby, the chief economist at CUNA Mutual Group in Wisconsin, said credit unions across the country are experiencing similar upticks in commercial business for similar reasons.
“Credit unions are generally very conservative with respect to business financing,” Colby said, “but when you are one of the few games in town, you can provide much- needed small-business financing with terms and conditions that protect your depositors.”
“The primary issue with credit unions making commercial loans is one of having the right background, control procedures and competent people to execute a plan,” Nicholson said. “Savings and loans [companies] that jumped into commercial lending in the early 1980s ran into some problems because they weren’t properly staffed to handle complex transactions.”
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Source: http://www.bizjournals.com/jacksonville/print-edition/2011/01/14/credit-unions-fill-business-loan-void.html
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