Member Business Lending is Growing

Member business lending is bucking the 12-month trend of flat loan growth in the industry’s loan portfolio.


Growth in the credit union loan portfolio has been largely flat over the past 12 months, but there are a few categories that are proving to be vibrant. One of those categories is member business lending. According to Callahan’s Peer-to-Peer software, as of March 2010, business lending was up 9.5% from balances reported the previous March, making it the fastest growing component of the loan portfolio

Market Conditions Help Credit Unions
In today’s economy, member business loans are in demand. We are pulling out of the “Great Recession,” but unemployment remains a challenge and individuals are considering starting their own small business. Credit unions have the opportunity to provide a service that has a positive impact on their members during a time when people are in need of financial assistance.

Many banks are responding to the current market environment by scaling back business lending programs or tightening credit criteria, which puts credit unions in the perfect position to meet increasing loan demand. 

According to data published in the American Banker (subscription required), of the 25 banks with the largest business loan portfolios, only two reported an increase in balances over the past year. Nineteen of those banks, conversely, reported a double-digit decline in their portfolios. In fact, except for GMAC (who did not have a business loan portfolio in 2008), each of the top 13 banks reported a double-digit decline in their business loan portfolios.

Origination Levels Are Strong
More credit unions are offering business services to their members, which is one contributing factor to the strong growth in business loan volume. As of first quarter, 2,089 of the nation’s 7,651 credit unions reported $29.9 billion in outstanding business loans. That is up from the $27.3 billion reported by 2,054 credit unions the previous year. Business loans are the fastest growing component of the loan portfolio; however, the rate of growth has slowed from last year’s 16.6%. This year is the first time growth in the member business loan portfolio has dipped below the double-digit mark.

MBL graph

Growth is slowing, but credit unions still remain active in the member business lending market. Credit unions originated $2.3 billion worth of member business loans in the first quarter. This is slightly below the $2.4 billion originated in the first quarter of 2009, but credit unions are keeping loan origination volume consistent with historical trends over the past five years. In just the first quarter of 2010, credit unions funded loans for more than 15,000 small businesses across the country.

Business Lending has Room to Grow
Business lending is increasing, both in terms of volume and credit union participation, but it still represents a relatively small percentage of the overall loan portfolio. In March 2009, business loans represented 4.75% of the total loan portfolio. Strong business loan growth over the past year coupled with a relatively stagnant overall loan portfolio has bumped that percentage to 5.21%.

As demand for business loans continues to increase – and larger banks remain unable or unwilling to meet that demand – credit unions have the opportunity to both drive growth in their loan portfolios and make a positive impact on their membership. Strong origination numbers and the decision of more credit unions to offer business loans will heat up the discussion on credit unions’ MBL cap.