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On Jan. 1, 2017, a new member business loan (MBL) rule took effect that grants greater regulatory flexibility to credit unions than under previous NCUA regulations. Credit unions that participate in member business lending, a full 35.9% of the industry, posted 15.2% year-over-year growth, and total MBL balances hit a record high of $62.7 billion as of March 31, 2017.
The final MBL rule lifted limits on construction and development loans, and credit unions are capitalizing on this change. Construction and development loans expanded 32.6% annually. Loans secured by non-owner occupied, non-farm, non-residential property accelerated at the second-fastest rate of 23.9%.
Despite this rate of growth, real estate secured MBLs still comprise the majority, 86.9%, of the industry’s MBL portfolio. Real estate secured MBLs have posted double-digit growth since June 2013 and totaled $54.5 billion in the first quarter.
The industry’s total MBL originations and purchases in the first three months of the year reached $6.2 billion — that’s up $1.3 billion, or 28.0%, from one year prior.
Small Business Administration (SBA) loans — an effective loan product to reach entrepreneurs, start-ups, growing businesses, minorities, and veterans — reached $1.6 billion as of March 31, 2017. Credit unions with assets of $1 billion or more extended nearly $230,000 per SBA loan on average, whereas credit unions within $50 million to $100 million in assets surpassed $151,000, on average.
MBL delinquency remained manageable within every NCUA region except for one. Delinquency for non-real estate secured MBLs, namely taxi cab medallions, at New England credit unions hit 20.1% in the first quarter of the year. This pushed the region’s average MBL delinquency to 4.5%. Ten credit unions in the Northeast region had an MBL delinquency greater than 10.0%, which drove up the average for the region.
Click the graphs below to enlarge and then continue reading to see how a Northwest credit union partners with three other credit unions and a local CDFI lender to help microbusinesses prosper.
Larger institutions underpinned the growth in average loan balances across the country. Whereas the median growth rate increased 2.8 percentage points, credit unions in the top 20th percentile posted gains of 9.6% per loan.
HARBORSTONE CREDIT UNION
Entrepreneurship is getting a jumpstart in and around Seattle, WA, and Portland, OR, with the help of an enterprising group of credit unions led by Harborstone Credit Union and a not-for-profit lender called Business Impact NW.
Business Impact NW (BIN) is a certified CDFI, SBA, and USDA lender that so far has made 20 loans totaling $849,520 with credit union capital that came from a group of four institutions that joined with BIN in 2015 to address the needs of small and microbusinesses.
Harborstone is joined in the effort by BECU ($17.2B, Tukwila, WA), OnPoint Community Credit Union ($4.8B, Portland, OR), and Verity Credit Union ($523.9M, Seattle, WA).
Borrowers come from a range of backgrounds and are engaged in a range of enterprises, including spas, micro-farms, breweries, and even Panama hat distribution.
BIN loans range from $5,000 to $250,000 and typical interest rates range from 7% to 11%. The organization also offers counseling, entrepreneurship classes, and partnerships with local universities.
Harborstone CEO Phil Jones says the coalition formed after the credit unions kept hearing from members, the community, and state and federal elected officials that women, immigrant, minority, and veteran business owners were having difficulty accessing loans and obtaining assistance from traditional lenders.
“Many of these firms are undercapitalized and might be lacking in the traditional things lenders look at. Collateral, for example,” Jones says. “Many businesses need more than a loan; they need training and assistance, too. Many have great ideas and a lot of passion but minimal business experience or knowledge. We provide the financial services they need as well as help them create a successful and sustainable business through additional assistance.”
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RETURN TO INDUSTRY PERFORMANCE BY THE NUMBERS 1Q 2017