The lending environment is undergoing an evolution. The continual entry of new players—especially on the Internet—has sharpened competitive knives that are cutting into credit union income. Business loans are an avenue for lenders to travel, since non-interest income is becoming so critical to survival.

The following three examples show how auto, participation and SBA 7a loans add to an organization’s revenue stream during the first year. The table shows a the traditional auto loan—the bread and butter of the credit union portfolio—has become more competitive as captive finance companies have the advantage of being at the point of sale. And there is little opportunity for noninterest income, unless other products are sold with the auto loan. An aggregate loan of $1 million earns a gross ROA of 2.99% for the first year. After expenses of underwriting, servicing, systems and staff the loan earns an estimated net ROA of 75 basis points.

Participation loans are a welcome addition to the portfolio for a number of reasons. For starters, they include origination and servicing fees. There is currently an oversupply of buyers for participation loans, but also an underdeveloped market of loan originators. Noninterest income could represents 48% of total income on such a loan.

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