With recent changes to member business lending rules, credit unions have new opportunities to target areas of commercial and business lending that were previously unavailable to them.
According to an article by the Philadelphia Federal Reserve, credit unions have been increasing their market share since 1998, when membership criteria was relaxed.
New regulations that took effect in January 2017 have expanded credit unions’ capacity to make commercial and business loans, including commercial real estate loans.
These changes have raised the limits on loan sizes to individual borrowers, and relaxed the rules for collateral requirements for business borrowers. Some of the specifics of the changes include:
• Eliminating the requirement that loan officers must always obtain a business borrower’s personal guarantee
• Replacing explicit loan-to-value limits with the principle of appropriate collateral and eliminating the need for a waiver
• Lifting the limits on construction and development loans
• Exempting credit unions with assets under $250 million and small commercial loan portfolios from certain requirements
Since the need to secure full and unlimited personal guarantees has been eliminated, lending to new types of business borrowers, such as apartment developers and medical practices, are potential opportunities for credit unions.
Also, the ceiling on business loans—which had been set at 12.25 percent of a credit union’s total assets—has been relaxed, as nonmember business loans are now excluded from the total. This means there is further wiggle room for credit unions to expand their business loan portfolios.
Before your credit union can make the most of these changes, your employees will need the skills and knowledge to identify and evaluate potential opportunities as they arise.
They will need to be able to:
• Have conversations about your members’ business needs
• Conduct preliminary assessments to understand what makes a good opportunity
• Analyze borrowing causes, cash flow, and risks for new areas like multi-family housing and high net worth individuals
Omega Performance offers training solutions that can help your credit union employees on their professional journey. Learn about our E-learning courses for Credit Unions or ask to speak to a representative today!