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Room to Grow: Credit Union Business Lending

Small business has been a major source of increased employment and the source of much innovation in the United States for several decades. Thus, credit unions should find it imperative to enhance their business lending services and offerings.

  • David A. Walker John A. Largay Professor, McDonough School of Business, at Georgetown University

Executive Summary 

The business loan market offers credit unions opportunities for growth and to provide economic support for their communities. 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. Data from 2010 to 2012 show that active business-lending credit unions increased their commercial portfolios by 12.1% while their total loans increased by 5.8%.

Credit unions today are restrained by statute and regulation from lending more than 12.25% of their assets to business, unless they qualify for one of several prescribed exceptions. This restriction continues while the commercial banking industry becomes more concentrated and the composition of its largest assets—loans—shifts away from commercial and industrial lending and toward various aspects of real estate lending. The percentage of bank loans to business has declined from 35% to 21% over the past 35 years while banks’ real estate lending has increased from 28% to 52% of total loans. Over the same period, the savings and loan industry has stagnated.

A recent National Federation of Independent Business (NFIB) Research Foundation survey of 850 business owners, each of which employs fewer than 250 people, reports that small firms are switching to nonbank institutions and that “the most common of these [switches] is [to] a credit union” (NFIB Research Foundation 2012, p. 5). Credit unions have become the primary institution and supplier of credit for 7% of the respondents.