MADISON, Wis. – There is a growth opportunity available to credit unions in business lending that would also benefit local communities, according to new research published by the Filene Research Institute.
According to CUNA Mutual, which funded the research, the timing of the study, titled, “Room to Grow: Credit Union Business Lending,” is “significant, as the public may submit comments to the National Credit Union Administration through month-end on the agency’s proposed member business lending rule modifications.”
The business loan market offers credit unions opportunities for growth and to provide economic support for their communities, according to the study’s author, David A. Walker, the John A. Largay Professor at the McDonough School of Business at Georgetown University.
“Credit unions that are active business lenders are expanding this asset more rapidly than other assets and, in many counties, filling gaps left by banks,” the study suggests, noting that the “commercial banking industry is becoming more concentrated and focusing more on real estate lending and less on commercial and industrial lending. Over the past 35 years, the percentage of bank loans to business has declined from 35% to 21%, while banks’ real estate lending has increased from 28% to 52% of total loans.”
The research does note that credit unions are currently restrained by statute and regulation from lending more than 12.25% of their assets to business unless they qualify for certain exceptions.
“An important policy question is whether credit unions should be limited to 12.25% of their assets in business lending,” said George Hofheimer, chief knowledge officer at the Filene Research Institute. “This study shows clearly that many credit unions can fill a business lending gap in their communities.”
The study focused on 120 credit unions located across 39 states and 96 counties. Credit unions in the study were all approaching the regulatory cap for business lending.
“Credit union business lending is primarily to small businesses, and it is well established that small firms are the engines of economic growth for many aspects of the U.S. economy,” the report states. “Increasing the percentage of total assets that credit unions may lend to business should be beneficial to local communities.”
Even when consumer lending demand is low, the study found that credit unions are finding ways to lend to businesses in their communities. In counties with larger banks and savings institutions, on average, credit unions do more business lending, according to the study.
“This is important research that we were confident would produce significant results that can potentially benefit the credit union system and small businesses,” said Christopher Roe, CUNA Mutual Group senior vice president for corporate and legislative affairs. “That’s why we chose to fund the study under the direction of the Filene Research Institute.”
The findings indicate a need for small businesses to gain greater access to credit, and credit unions have an opportunity to fill the void being left by commercial banks, which will potentially provide economic benefits, Roe added. “We plan to submit the report to the NCUA with our public comment letter advocating the agency’s proposed member business lending rule changes.”
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