TALLAHASEE, Fla.-Lending is up significantly at two business lending CUSOs, and both are thanking banks for a chunk of the increase.
Cooperative Business Services in Cincinnati more than doubled business during the first quarter over the same period last year. And Member Business Solutions here posted a 51% increase in dollar volume and a 32% jump in average loan size in the first four months of 2013 compared with the same time period last year.
The fact banks are back in earnest with business lending-after taking a hiatus during the recession-has spurred lower rates and let businesses know they now have greater access to funding, which the two CUSOs say is prompting businesses to think about expanding.
"It has created a renewed sense of optimism from borrowers," said Jim Gallagher, president and CEO of Member Business Solutions. "They feel better about the economy and their chances of getting a loan. So banks being out there again has created a wave of optimism among businesses which, from our perspective, has lifted all boats."
Keith Reed, president and CEO of Cooperative Business Services, said that business lending CUSOs, with their economies of scale, compete favorably with banks that are coming back with low rates.
"It does not concern us that some banks have re-entered the market in an aggressive posture," said Reed. "On the really strong credit we have gone as low as 3.75%, and no higher than 5%. That seems to be the window we are in right now. There just is a lot more bidding going for business in general and we are fortunate to be asked quite a bit to come to the table and quote rates."
Gallagher said credit union business lending CUSOs, and credit unions alike, should not be surprised that more businesses are including CUs as one of their lending options. "Credit unions' business lending reputation is growing. It's clear not only from what we see but from research."
Gallagher pointed out that market research MBS subscribes to indicates credit unions are becoming a more popular choice among small businesses for loans, while commercial banks' appeal is declining (see chart). The business coming MBS's way this year shows not only dollar volume and average loan size increasing the first four months of 2013 over the same period last year, but the number of loans are up by more than 14%.
Adding In-House Expertise
Despite leaning on the CUSO for much of their MBL support, more MBS credit unions, according to Gallagher, are adding in-house business lending expertise. "They are adding staff to deal more with loans under $50,000, so we have seen more loans of those sizes coming off our books."
What is also leading to increased activity is NCUA in 2012 making it easier for CUs to qualify for the low-income credit union designation. That designation exempts credit unions from the cap on member business loans, and also allows them to raise supplementary capital.
"A number of our credit unions just received their low-income designation and have done away with their MBL cap," said Gallagher. "The sense I get from most of them is this designation allows them to place a greater emphasis on their business lending operations. A few of these bigger, more active credit unions were probably a couple years away from their cap, so they were making conscious decisions to pull back on their number of loans. Now they have the pedal to metal and are originating without any worries of hitting a cap."
Eight CUs Are Owners
MBS is wholly owned by Corporate One FCU, Columbus, Ohio, and services 70 credit unions from Miami to Vermont, with a heavy concentration in the Mid-Atlantic region. Cooperative Business Services has a presence in ten states, most east of the Mississippi River, with a heavy concentration in Ohio. It is owned by eight credit unions and the Ohio CU League and supports 70 CUs.
What Reed sees happening now is credit unions are becoming more skilled with and focused on MBL, especially with the need to find more revenue-driving sources. "There is a collective commitment on the part of credit unions and their CUSOs to get better at business lending and to compete stronger. In many respects the credit union community is hitting its stride-I know we are, we are heading for a record year."