Business Lending Challenges and Opportunities for Credit Unions
Credit Union Times asked leaders of some of the industry's business lending CUSOs, "What will be the greatest challenge and opportunity for credit unions and their business lending programs in 2010?"
In 2010, credit unions will have an extraordinary opportunity to contribute to our economy's recovery by supporting the capital needs of small businesses in more visible and meaningful ways than in the past. Credit unions are uniquely well positioned because they have sustained lending capacity in part because of collaborative efforts that share cost and risk. Given the capital challenges of many banks, this will have unique importance in the year ahead. However, most importantly, the extraordinary challenges of this economy require that all commercial lending credit unions view portfolio risk management as the most critical priority facing the health of their lending program both individually, and collectively as an industry.
Michigan Business Connection LC
Ann Arbor, Mich.
The greatest challenge, I believe, will be managing through examiner scrutiny of business loans, especially the larger ones. The greatest opportunity continues to be securing new businesses as CU members. This has resulted from the banks pulling back on the extension of credit.
Cooperative Business Services LLC
The greatest challenge in 2010 for CUs with MBL programs will be to strengthen their respective portfolio management activities through more direct and meaningful contact with borrowers. This means adopting calling programs that are based on perceived credit risk parameters so as to ensure there is an early warning mechanism in place should borrowers encounter difficulties.
Conversely, the greatest opportunity in 2010 will be to forge ahead in building new relationships by aggressively positioning themselves in the market as an alternative to the "big banks."
Octant Business Services LLC
Lending will remain tight in many banks. The poor performing banks are internally focused on viability and many strong banks have elected to sit on the sidelines. Positive media given to CUs continues to inform an otherwise unknowing business public that credit unions are viable and willing providers of business credit. I anticipate sound financing opportunities will continue to grow for CUs in MBL as the economy slowly continues to improve.
Contrary to the thoughts of many, 2010 will be an excellent time to begin an MBL program. Unlike a robust economy where the competition is plentiful, 2010 will be a time of limited business loan providers. Demand for MBL is greater than the supply allowing CUs to select the lending opportunities they wish to pursue without the pressures of a business member waving multiple loan offers in front of them.
There is no pricing pressure in today's environment as there is in a robust economy. In today's environment, CUs can make solid asset-liability decisions relative to MBL pricing rather than be held hostage to market conditions. In a strong economy, particularly when the supply of MBL providers exceeds the demand for MBL, there is an ever present downward pressure on pricing beyond what may be financially viable.
All the nonperforming MBL loans in the news today were extended two, three and four years ago. No one-business or consumer-is making bad loans today. Vigilance is far too great. Credit standards are very high, requests are reviewed multiple times prior to approval, all of which provides little opportunity for poor credit to be approved.
Starting in this environment, CU MBL personnel can see the results of loose MBL underwriting standards and aggressive lending decisions produced in a booming economy. The end result years down the road has proven to be very ugly. If a CU starts in that sort of robust economy, they may not fully realize the underwriting standards for MBL have been greatly relaxed by some, and consequently the negative effect it can have on their CU down the road. The United States has not seen a down economy in over 15 years. Banks and CUs have lending personnel considered seasoned that have never seen what happens when the economy goes south. It has been a learning experience for many. Isn't it better to start now that the real MBL training has begun?
As MBL activity increases, particularly among businesses that have not traditionally sought loans from CUs, so will the products and services related to MBLs. Demand for business share accounts, business credit cards, remote capture, online banking, and related products and services will increase.
With vacancy rates increasing in many CRE types, downward pressure is being created on lease rates. Loans approved at prior income streams may no longer be valid. CUs will need to be vigilant about lease terms, maturities, renewals, and the effects on net operating income these changes may have. Decreased lease rates will result in lower CRE values thereby effecting LTV. CUs will need to display strong lending discipline and not fall victim to the issues faced by banks in CRE, particularly as banks encourage their CRE loans to go elsewhere. CRE will be a viable loan type for CUs in 2010, but expertise in CRE lending will be essential to maintaining a strong MBL portfolio.
Increased regulatory requirements for MBLs seem almost certain. How much will be enacted in 2010 remains to be seen, but with MBL delinquency exceeding consumer/retail delinquency in the CU industry combined with explosive growth since 2000, the NCUA is bound to tighten.
E. Michael Gudely
Innovative Business Solutions
I believe the biggest challenge for 2010 will be portfolio management as the commercial market continues to decline and trying to work with those members that can survive and aggressively collecting on those who won't. It looks like the examiners are giving some good guidelines on how they would like to see workouts handled. The opportunities for 2010 are great because the banks are continuing to contract their lending. There will be good loans that the credit unions will get an opportunity to look at that wouldn't have happened in the past.
Centennial Lending LLC
It seems inevitable that one of the major challenges faced by credit union business lending programs in 2010 will be maintaining and controlling asset quality as businesses and consumers struggle through what has proven to be the worst economic downturn since the Great Depression.
On the other hand, credit unions are in a rare position to become more prominent providers of services to businesses throughout the country as most commercial banks continue to focus their efforts on addressing loan problems and away from funding new opportunities and serving existing well-performing business relationships. The key to taking advantage of this opportunity will be the ability to attract the business relationships that are financially strong and well managed.
Spectrum Business Resources LLC