According to Callahan’s Peer-to-Peer software, for the one-third of credit unions that participate in member business lending, business loans and unfunded commitments (less sold participations and SBA-backed loans) is equal to 3.36% of their total assets, well below the current 12.25% (of total assets) cap. However, during the past five years member business lending has grown to represent a greater fraction of credit union total assets. In March 2009, business loans represented 4.75% of the total loan portfolio. Strong business loan growth last year coupled with a stagnant overall loan portfolio has bumped that percentage to 5.21% as of March 31, 2010.
Of the credit unions that hold business loans on their books, 85.8% of their member business loans is in Business Real Estate, 4.7% is in Agricultural Business Loans, 4.6% is in Construction and Development Loans, 2.5% is in Purchased Business or Participation Interests, 1.9% is in SBA Loans, and .5% is in Unsecured Business Loans. 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 drive growth in their loan portfolios and serve members’ financial needs.
The industry as a whole is far from reaching the MBL cap; however, 133 individual credit unions have already surpassed it (of those 133, approximately 100 were grandfathered an exemption from the MBL cap because they exceeded the cap at the time of its imposition). Fifty-seven of the 133 credit unions that are over the cap are making more business loans in 2010 than they did in 2009. If the cap were raised to 25%, as proposed in The Small Business Lending Enhancement Act, only 63 credit unions would exceed the MBL cap. Increasing the cap allows for stronger origination numbers by the credit unions already involved in business lending and makes including business loans as part of their business model a more viable option.