Intent on expanding its services to small businesses, a Philadelphia-area credit union is taking an unusual step: entering Small Business Administration lending.
Credit unions haven't typically participated in SBA lending. But the government-backed loans are "a fundamental part" of Citadel Credit Union's expansion blueprint, Michael Desimone, the $6.3 billion-asset institution's chief lending officer, told American Banker.
Citadel, headquartered in Exton, Pennsylvania, began originating SBA 7(a) loans earlier this year. It expects to close its first such deals this summer. Previously, Citadel confined the scope of its business lending to commercial real estate, building a portfolio that totaled $381 million as of March 31, according to the National Credit Union Administration.
Now, Citadel is leaning into SBA lending to make it more relevant within its Philadelphia-area footprint, where the vast majority of commercial enterprises are classed as small businesses. "These businesses are where our members work and shop, where they spend their time and money," Desimone said.
Though Desimone, who joined Citadel in October 2024, declined to disclose the company's specific targets, he said SBA lending would be an integral part of its business model going forward.
"We plan to ramp up over the course of the rest of the year," Desimone said.
Credit unions' member business lending continues to grow industrywide. It topped $167 billion at year-end 2024, up 56% from the total three years earlier.
The Credit Union Membership Access Act of 1998 limits an individual credit union's member business lending to about 12.25% of its total assets, but the guaranteed portions of SBA loans don't count against the cap. That carveout would seem to make SBA lending an obvious option for credit unions involved in commercial lending. But moves like Citadel's remain rare.
Of the 1,303 lenders currently active in the SBA's flagship 7(a) loan guarantee program, just 151, or 12%, are credit unions. Most of the participating credit unions, moreover, are smaller players that close a handful of loans each year. Only two credit unions rank among the top 100 7(a) lenders by dollar volume.
That proportion has gone largely unchanged in recent years. Credit unions comprised 11% of 7(a) lenders in the SBA's 2024 fiscal year, up only slightly from 10% in fiscal 2021.
Banks have traditionally dominated the 7(a) program, which provides guarantees ranging from 50% to 85% of the loan amount.
While credit union advocates have
In a May 20 letter to Sens. Bill Hagerty, R-Tenn., and Jack Reed, D-R.I., the chairman and ranking minority member of a key Senate subcommittee, Nussle advocated simplifying 7(a) program requirements and increasing the training and guidance that the SBA makes available to lenders.
"Streamlining SBA loan processes would be a game-changer for credit unions and the small business they serve," Nussle wrote. "While credit unions are eager to grow their SBA loan portfolios, many report that the administrative burden, lack of internal expertise and high costs associated with participation remain significant barriers."
A number of Citadel's executives and bankers worked as SBA lenders in previous jobs, Desimone said. Having that skill set in-house made the process of building an SBA business less daunting.
Citadel is taking a broad approach to SBA lending, with no immediate plans for verticals or specialties. Most of its loans will likely fall into the small-dollar category, $175,000 or less, but it is not setting limits for itself.
"We won't turn anyone away" based on loan size, Desimone said.
Citadel also plans to improve its digital capabilities to enable its clients to conduct more business online. "We want to meet members where they are," Desimone said.
