BEDFORD, N.H.—Just how much risk is there in member business lending? Not much, if you do it right, says Service CU, which has not had a single delinquency in the 6.5 years since it launched its MBL program.
The credit union attributes that success largely to hiring skilled business lenders for its 10-person team, who not only make sound lending decisions but are respected and used as resources by borrowers. That leads to a close working relationship between the credit union and the businesses it serves, which Service CU says is imperative to keeping delinquencies down.
“Zero delinquencies is rare, I know,” said David Weed, AVP of business services. “As a direct result of our staff’s skill, we are dealing with some quality businesses. We underwrite conservatively, and each lending decision is made on a sound understanding of each business.”
Weed emphasized that staying in touch with each of the businesses not only keeps them paying on time, it also allows the $3-billion credit union to know when a business might face a problem, and then assist.
The Pay-Off
“That is where having talented staff really pays off,” said Weed. “If we see someone is a little late on a payment we call them, ask if there is a problem and if we can help.”
The credit union’s business lending program recently received and Excellence In Lending award from CUNA Mutual Group. The honor recognized Service CU not only for its lending production—$15.8 million in 2015—and zero delinquencies, but also for expanding lending to a diverse base of businesses.
The program started in 2010, working first with a number of small and medium-size businesses positioned for growth, especially in construction, explained Weed.
“Their balance sheets were strong, costs to construct were low, and the interest rates remained favorable,” said Weed. “It’s given us an anchor strategy, as typically a construction mortgage will remain with a credit union for several years, giving us the opportunity to continue to serve the business and its employees. That leads to providing businesses with other products and services.”
Next, SCU moved into floor plan lending with local auto dealers.
“Our indirect lending department leads the state of New Hampshire from a volume basis,” said Weed.
Service Credit Union currently serves approximately 1,700 businesses, adding about two to three new business loans each week. Through the first three quarters of the year, SCU originated $82 million in new loans.
“Construction and floor plan lending has provided significant opportunities for us to expand our commercial relationships,” said Weed.
What has also helped the credit union extend its reach is establishing its Service Capital CUSO in 2014. Wholly owned by the CU, the CUSO was created to allow the credit union to provide loans outside its FOM borders.
“After we started the program, we realized that many of the businesses we work with have a new England presence outside of New Hampshire,” said Weed. “The CUSO allows us to serve businesses outside our state.”
Key Advice
Weed provided the following tips for credit unions considering entering business lending:
Hire staff with solid business lending experience: “Businesses want a trusted financial advisor, so you have to have staff with a background in business banking who can listen to that owner and provide expert advice,” said Weed.
Have strong products: “Understand your market needs and provide those services the market wants. For example, we saw a strong need for construction lending. And, of course, be competitive with rate and proposals.”
Support business lending across the organization: “Business lending does not happen just by the efforts of the lending department,” said Weed. “You have to have support. It takes time to build a business lending program. It took us two years to institute the systems, processes and marketing to create the visibility that we needed within our communities.”