Michigan is at the forefront of a movement that could impact credit unions in the coming years. The shift involves diversification of lending to include more commercial loans, rather than substantially relying on auto and home mortgage products, as they have done in the past. It is a move that is already occurring, and the shift could yield an overall increase in commercial lending. So, why is Michigan leading the pack?
Why Commercial Lending is on the Rise
As it happens, there are a few factors at play. First, the state’s banking industry was hit hard during the recession. Federal and state regulators shut down many community banks. Banks that survived the hit saw commercial lending come to a screeching halt. This blew the door wide open for credit unions to enter the market, and they did.
Take the case of DFCU. The recession exposed an underserved warm market to many credit unions, and the DFCU was quoted as seeing a chance to take advantage of it, though apparently reluctant at first. Specifically, Mark Shobe, president and CEO of DFCU, was reported as being resistant to commercial lending. Reportedly, he fought it for years, preferring to stick to more traditional bread-and-butter loans, such as for vehicles and homes. However, DFCU took a survey of its members and found that approximately 8,000 or more were business owners. “We already had 8,000 leads and that was a good place to start,” says Mark. “If you like us as a customer, we already have your attention.”
The second reason for the shift toward commercial lending has to do with a unanimous final ruling by the NCUA board to approve member business lending. The ruling amends part 723 of the NCUA rules and regulations surrounding the issue of federally insured credit unions, creating member business loans (MBLs). Of interest in the final rule, is that in certain instances and circumstances, credit union loan officers will not require the member to provide a personal guarantee.
Both of these factors have opened the door to a more traditional commercial lending approach with regard to credit union membership, and have the potential to increase member business lending. The trend is already starting to occur nationwide, as other states are waking up to the potential offered by the ruling and recession.
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To read similar articles please visit Oak Tree Business Systems, Inc. August 2016 Advantage – The Lending Olympics.