PORTLAND, Ore. – The new member business lending rule could help credit unions that have some experience with business lending but could not jump fully into the MBL marketplace, said one industry insider.
"The new rule will allow them to be more competitive as the regulatory handcuffs are coming off," said Larry Middleman, president and CEO of business services CUSO CU Business Group LLC.
More importantly, the lifting of the personal guarantee requirement in certain situations could open up some lucrative niche markets previously untouched by CUs, according to Middleman.
For example, some credit unions could tap into apartment lending.
"Credit unions will be able to target niches, which has not always been a strength in the past," he assessed. "They might not have a track record compared to commercial banks. The new rule offers flexibility to help with a lot of aspects. If an apartment building shows good occupancy and good cash flow, the credit union can make the loan."
Another scenario Middleman foresees is the ability of CU lenders to work with medical practices or high-net-worth individuals. In these cases, he explained, most commercial banks waive personal guarantees. "Now credit unions have parity, and that is what it takes to win a deal."
The new MBL rule will result in "more business for everyone in the credit union industry," Middleman predicted. Without a personal guarantee requirement, he said, credit unions will be able to do a lot more commercial loans.
"There will be an opportunity to go after more deals, but of course, credit unions will still need to earn the business."
CU Business Group recently invited more than 750 credit unions to participate in a poll, which asked, "When the rule is fully implemented, what level of policy/procedure changes do you anticipate your credit union will make?" The top answer, at 34%, was, "We do not yet know what we will change." In a very close second at 33% was, "We will change only a select few key items."
"We do not anticipate making any material changes" was in third with 18%. "We are state-chartered and operate under a separate MBL regulation" was selected by 11% of respondents. Only 4% replied, "We will make major changes throughout our policy."
