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.

Instant Insights /

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