Lending Competition: New Rivals Woo Small Businesses
The Great Depression and the decades leading up to it forced many to look beyond their comfort zones just to be able to survive another day.
Be it a bartering system that exchanged services for bread and fruits and vegetables or a small group of factory workers pooling their wages to form a lending system after being shunned by banks, survival became the impetus.
Middleman said while larger, national banks are not a huge competitive threat dominating the market, they have a product packed with technology features – a lure that appeals to many small business owners.
Still, a sweet spot for credit unions is courting and building long-term relationships with businesses that have 25 to 50 employees, Middleman said.
“Some of them are pure real estate lenders but they might be more conservative with a 65% to 75% LTV range with much lower rates,” VanGraafeiland said. “Others want to do investment grade deals. They are very aggressive with an 80% LTV, 30-year amortization and very low debt service coverage. We can’t compete with them because they’re doing very big deals. They’re up there in the ionosphere.”
Beyond physical competitive threats, VanGraafeiland said regulations may stifle the credit union industry’s ability to compete; most notably, the 12.25% of assets member business lending cap. In February, Coastal FCU was $2 million from its cap. A sell-off of some loan participations provided some breathing room. “It’s a daily occurrence to keep us out of the ditch,” VanGraafeiland said.