The release of mid-year data brings to light some interesting trends in credit union business lending. Notable is the continued solid growth that this component of the loan portfolio is experiencing. As of June 2008, member business loans are the fastest growing loan category for credit unions. Annual growth reached 18.1% in June for a total outstanding balance of $24.6 billion.
A key driver of this growth has been the increasing demand for financing, as many small businesses are now facing increased difficulty when looking for credit. According to the most recent Federal Reserve Senior Loan Office Opinion Survey, as of July 2008, 65% of institutions surveyed have tightened their lending standards on loans to small businesses. This marks a significant increase in this metric over the last quarter, increasing from 50% in April. According to the same survey, 80% of banks have also increased spreads on loan rates over their cost of funds.
With more banks tightening their lending standards, making it more difficult for small businesses to gain access to adequate funding, the stage is set for credit unions to step up and come to the aid of these small businesses. The good news is that credit unions are responding to this demand with a record number of credit unions now offering business lending. As of June, there are now 2,022 credit unions that offer member business loans. This means almost 25% of all credit unions now offer this type of loan, a strong increase from the 17.3% of credit unions that offered member business loans in 2004.
As member business loan volume increases, the largest component of this lending category remains commercial real estate. As of June, commercial real estate loans comprised 93% of all business loans at credit unions. As more small businesses look to credit unions for financing opportunities, many credit unions will have to expand the breadth of member business services they offer. In addition to real estate loans, many businesses are now seeking smaller-value loans. These loans typically take the form of a business line of credit, or a business credit card which is rapidly becoming one of the most sought-after products for small businesses. According to the National Small Business Association, the percentage of small businesses using credit cards has increased from 16% in the early 1990s all the way to 44% today.