In pursuit of MBL growth, however, credit unions must consider how some types of business lending (such as asset-based lending) require more frequent monitoring of the member business to ensure sufficient cash flow for payments. This process change often requires resource reallocation if they expand their member base. As an example, consider the increases in documentation that would be required if quarterly financial statements are due from the member business; analysts may spend hours simply collecting the documentation and then added time entering or spreading the information appropriately.

These expanded steps reduce the time available for analyzing the spreads and relevant trends, and reviewing them with the loan committee to identify risk.

Credit unions can more efficiently grow the business loan portfolio through automation. For example, online loan applications can cut down on document chasing for initial loan requests, and electronic signatures and electronic document uploading improve the member's experience throughout the application process and the life of the loan, allowing them to skip unnecessary branch visits. Other credit unions are implementing loan decisioning software tailored to the institution's risk appetite for a specific type of MBL. With each of these technologies, the institution is also digitizing the process, which makes it easier for the institution to scale without undue reliance on paper or reporting limitations.

CRE Lending

Just as business loans have risks and rewards, so do loans related to commercial real estate, whether they are construction and land development loans, commercial mortgages or loans to purchase multifamily residential buildings. One of the attractions of CRE lending is that the dollar amounts involved are typically large, which helps the credit union more quickly cover the cost of origination than may be the case with smaller business loans.

There is a healthy demand for expanding CRE portfolios, but the nature of CRE – higher exposure, complex or related member entities – can elevate risk to a credit union. Fortunately, these risks can be counterbalanced with sound lending principals throughout the origination, loan management and risk monitoring:

• Consider specializing in niche asset types, for example, specific properties or industries, making sure the institution understands those markets and their position based on the current state of the economy. Identify the bench strengths of your officers and credit staff and leverage those to develop new business or to develop a loan structure that isn't offered in the market. For example, you could target smaller debt or refinancings.

• Standardize the lending and approval process at the credit union, tailoring the process to each property type or loan product. For CRE loans with intermingled entities, a global cash flow analysis may be even more critical than simplified MBL. Ensure the institution's loan pricing methodology accounts for the risk and total member relationship so that credit staff can easily identify the pricing thresholds that commensurately cover risk. Automate as much of the underwriting process as possible with electronic document collection and automated decisioning to improve response time for the member. Technology that helps analyze, decision and price loans quickly based on automated rules and templates provide lenders more time for member service.

• Leverage automation throughout the administration of the loan, too, for efficient credit monitoring processes. These are especially important for credit unions that may not have a large administrative team but otherwise have to manually manage relationships. For CRE, appraisal management can also benefit from digitalization by tracking which appraisals need to be updated and facilitating communication with the appraiser or lawyer to collect required documents.

Before a credit union launches a plan to grow business loan portfolios, it should consider which type of loan is a better fit. C&I lending is valuable for deepening relationships with business members, but loan size can challenge competitiveness. CRE loans are typically larger, but they come with unique challenges based on local economic conditions and the illiquidity of real estate. Credit unions can balance out risk and growth potential by standardizing and automating the loan origination process.

Mary Ellen Biery is a Research Specialist at Sageworks. She can be reached at 919-851-7474, Ext. 2578 or [email protected].