Why Fluctuating Rate Scenarios Mean Biz Lending Will Only Grow In Importance
LENEXA, Kan. -
Mike Hales, president of Counter Intelligence Associates, noted the reasons for CUs to get into member business lending can be found in the daily economic news. He said the bottom line from all the economic forecasts in recent months is there will be problems in mortgage portfolios with adjustable rates. Members with sub-prime loans whose payments can, in some cases, even double will have some difficulties, he continued, and in new car lending, there remains a lot of pressure and competition from auto manufacturers.
"This means business lending has a huge market potential," Hales said. "There are many ways for credit unions to step up to the plate. The easiest way to get started is to collaborate with other credit unions."
Credit unions attempting to go it alone with business services will be in for "sticker shock," Hales predicted. "Plus, there's the 12.25% cap that might curtail business lending soon after they get started. The CUSO, as an entity owned by several credit unions, can afford to pay the salary for an experienced commercial lender, and it is not subject to the cap."
The key to survival today is collaboration, Hales continued. He said credit unions must start working together and helping each other, "and a multi-owned CUSO is a perfect example of how that model works."
There are likely two-dozen business-lending CUSOs around the country, Hales estimated. "That's not that many, but they serve more than 100 credit unions. The average is about seven CUs per CUSO."
According to Hales, a member using a HELOC to start a business is a very high-risk loan for a CU to make, and he urged credit unions not to make loans for the sake of providing operating capital to a business.
"There are many entities, such as the SBA, that make those loans, and credit unions should partner with them," he advised. "Providing capital to start businesses is high risk, and is equity capital, not debt capital. A business should be in existence two years before a credit union gets involved. Do this through a CUSO; it is the best and most flexible business model."
Business lending provides another benefit, according to Credit Union Business Capital (CUBC), Miramar, Fla.
The CUSO that was originally chartered by Eastern Financial Florida Credit Union and which now has numerous other CUs as partners in business lending and business services operation, points to the membership growth opportunities that a commercial services program can bring.
CUBC will be discussing just that issue during a session at the Credit Union Journal's Business Development & SEG Conference April 12-13 in Boston.
See related information at www.cujournal.com and on page 6.