MBL Experts Urge Caution
CHICAGO -- Don't take wild risks in business lending but be aggressive in serving your members and trying to bolster your credit union's bottom line.
That's the advice N. Bradford May, Money One FCU vice president for business banking, and Steven Smits, Middle Atlantic Financial Partners vice president of operations, gave attendees at NAFCU's Annual Conference.
May said his credit union has successfully used CUSOs to underwrite loans, and he suggested that credit unions do the same because this will enable them to tap into the business lending experience that they may not have on their own staff. But he urged credit unions to pick a CUSO their area because they are familiar with the local economy.
"It's expensive to hire experienced people to staff your business loan operation-you need someone with five years' experience and that can cost you," he said.
He added that his credit union has kept its business lending staff small and relied on a CUSO to "spread the costs."
Smits said business lending is not something credit unions can do casually and expect to make money at.
"Plan your business lending growth in a way that makes sense to your business model, but keep in mind that Main Street lending is a roll up your sleeves kind of lending," he observed.
May noted that the NCUA is especially vigilant in monitoring member business loans and therefore credit unions should be thoroughly familiar with the laws and regulations that govern MBLs.
As a result of a 1998 law, credit unions can only make business loans of up to 12.25% of their assets, although credit unions have been pushing to get the cap lifted to 27.5%.
May said any business lending policy should include clear definitions, including very specific descriptions of the type of loans offered; loan approval and administration procedures; collection procedures; loan review processes; and a policy for allowance of loan and lease losses.
He noted that a 2009 survey by Raddon Financial Group found that 83% of respondents said competitive fees were extremely important and 80% gave the same rating to getting a good deal on checking accounts.
Other services that were ranked high included competitive interest rates on deposits, convenient locations, online or remote access, and staff that is knowledgeable about and responsive to the business owner's credit needs.
He noted that 29% of respondents were dissatisfied with the knowledge level of the staff of their business lending institution.