Some eager credit unions around Massachusetts are stepping up their commercial lending operations, saying they’re reaching out to meet an unmet demand in the marketplace and arguing for credit unions’ place at the lending table.
But while greenhorns see an opportunity to pick up good credits and expand their businesses, data on a handful of more-established and bigger credit union commercial portfolios indicates more caution. As they watched delinquencies trend upward last year, some of the old guard reined in their portfolios, according to the most recent National Credit Union Administration data.
Greylock Federal Credit Union, a relative veteran with a decade of business lending under its belt, saw total business loan delinquencies spike last year, to $8 million at the end of 2009, from $1 million in December 2008. At the same time, its volume of outstanding loans dropped.
Delinquencies also grew by several thousand dollars for Metro Credit Union. And while Metro did grow its portfolio in 2009 – member business loans went from $33.7 million to $36.4 million – that’s a slowdown compared to 2007-2008, when volume briskly rose from $21.9 million to $33.7 million.
Cautious Optimism
But for a fresher crop, business lending seems to be undergoing a surge. Cambridge Portuguese Credit Union started commercial lending in the second quarter of last year, and had 14 loans on the books by year’s end. Freedom Credit Union went from two loans to nine, for $1.4 million, as of December 2009.
“It’s humming right along,” said Brian Kaye, commercial loan officer for Springfield-based Freedom.
Commercial lending among credit unions is still largely in its infancy, and critics say credit unions are putting themselves in danger by plunging into a riskier, more complex type of lending with no institutional knowledge of how to go about it. Kaye counters that institutions like Freedom often join credit union service organizations (CUSOs), which have experienced underwriters to guide them.
Friend Weiler, commercial loan division manager for Brockton’s HarborOne Credit Union, adds that credit unions can meet the demands of small business borrowers the bigger banks have left behind.
“If you can pick your way through the minefield, there’s a lot of good business out there that’s gone begging,” said Weiler, a former Sovereign Bank officer who joined HarborOne in February 2009. While HaborOne qualifies as a “veteran” with a few years’ business lending experience, in attitude it more closely resembles the newbies in the field – despite its own spike in delinquencies, which peaked at $3.6 million in June 2009 before sliding downward.
Other veterans agree there’s good business out there, but they take a more measured tone.
“With the combination of delinquencies rising in this type of environment, you’re just naturally more cautious,” said Stephen Mackowitz, vice president of commercial lending for Digital Credit Union in Marlborough.
Digital’s total member loans fell 4.7 percent last year, to $414.9 million from $435.5 million in December 2008. Delinquencies jumped from $3.7 million to $10.9 million during the same time period.
Call Of Duty
None of these rising commercial delinquencies are going to drag any institutions under, as credit unions must keep their commercial lending portfolios below 12.25 percent of their overall portfolios, a limit no Massachusetts credit union has reached. Even credit unions with a bit more experience say they believe the economy’s troubles won’t get any worse in the near future.
“It’s safe to say with the economy where it is, we’re being judicious,” said John Bissell, senior vice president of marketing for Greylock. “But we’re still working very closely with small employers who have good management and good business plans.”
But the newer entrants to business lending say they’re being cautious as well. Brookline-based Medical Area Credit Union executives said they belong to a CUSO – Northeastern Member Business Services in New Hampshire – and have the kind of in-depth community knowledge to help them make the right choices, according to President and CEO Nicole James.
They want their business customers educated, too: Individuals can attend Medical Area Credit Union-sponsored educational sessions about pertinent issues like taxes, cash flow and business plans.
The credit union is doing some small commercial real estate business, as well as micro-loans of about $5,000, a niche most institutions don’t bother with. Members have asked for these services, and the credit union can – with caution – provide them.
Credit unions have a duty to serve the financial needs of the community, James said, and business lending is part of that, too.
