As a 37-year former banker with over 25 of those years spent in commercial lending, and now with another 13 years in commercial lending in the credit union space as CEO of a commercial lending and business services CUSO, I continue to be baffled by the industry’s reluctance to embrace commercial lending (also called business lending or MBL) and get the benefits that the line of business affords. Why, out of over 4200 credit unions today, do only about a third make commercial loans? Before we get to the bad rap, let’s talk about the benefits:
Commercial lending can provide:
- Membership growth. For every business, there is at least one, and often, multiple owners. So, you are not only getting one new business member but have the opportunity to gain multiple new consumer members for continued growth of those lines of business.
- New and diversified revenue streams with higher rates generating more interest income and fee income, the opportunity for higher dollar deposits and to sell treasury services, which generate additional fee income.
- Diversity of a loan portfolio that is typically centered in, driven by, and sensitive to economic changes and consumer demands or taste.
- Credit unions that make commercial loans enjoy higher revenue and net income growth, which results in higher ROAs. They also enjoy added reputational benefits by being more engaged in their communities through the relationships established with local businesses and the people that own them or work there.
Okay, if those are the positives, why the bad rap? As I travel to league meetings and other credit union events and talk to executives about commercial lending, or more specifically, why they don’t make commercial loans, it boils down to the same few things I consistently hear. And in anything that is unknown, it’s those few things that can make things scary. Let’s talk about those:
1. “The regulators don’t like commercial loans."
Can’t think of anything more untrue. If it was, they would not have introduced the ability to make commercial loans and would not have supported that when the banks were working so hard to stop it. In addition, when the NCUA rewrote the commercial lending regs (MBL regs) in 2017, they gave the credit unions the ability to do more lending when they went from a restrictive set of regs to prescriptive regs, giving the credit unions the ability to write their own loan policies as long as they addressed the guidelines on how to identify and manage the risk in the portfolio. The feedback I’ve received from credit unions that follow this has been solid exams with no adverse findings
2. “It’s too risky.”
“I don’t know anything about it."
I lump these together because they seem to go hand in hand. As to risk, the regs clearly lay out how credit unions are to go about their commercial lending activities, and as long as you follow the spirit of the regs, along with the roadmap that is your commercial loan policy, and have the right people with the knowledge and experience in commercial, I submit it is not too risky. In fact, it’s far less risky than the consumer loan portfolio. You take one or more things out of the preceding sentence, and yes, you have increased your risk. And the regulators and the regs say that if you don’t have the knowledge and experience in your shop, then go get it. That’s what CUSOs are for, and there a quite a few good ones out there. But here’s the other way I address the “it’s too risky” reply: In my 25 years in commercial lending in three banks, I never had a charge off. Over the past 13 years, I’ve overseen the underwriting of over $6 billion in commercial loans made by credit unions which have over $1.25 billion currently sitting in their portfolios. Past dues on those loans typically run between 0.00-0.25% and in 18 years, these credit unions have only experienced one charge off. Look at your consumer portfolio and tell me you can come close to that. And before I leave the risk section, let’s talk about the elephant in the room. It’s been well publicized that commercial lending past dues and charge offs escalated in 2025 reaching a new high of 1.22% in past dues 3Q25 and over $445 million in charge offs, and $199 million in 4Q2025 alone. But if we dig into those numbers, there were 15 credit unions that accounted for 81% of those problems. And I’m guessing they don’t use commercial lending CUSOs.
3. “I think there is a recession coming and don’t want to take on more risk."
Really? Who is impacted the most in a recession? It’s the consumer that gets laid off because the business is doing what it needs to do to cut overhead and stay in business. And many businesses are super successful during recessions. So, let’s not cut our nose…
4. “It’s too expensive to start and I don’t have anybody to manage it."
This is where my learning curve went off the charts in 2013 and 2014. CUSOs are a way for credit unions to collaborate and cooperate to solve common problems, not the least of which includes knowledge and experience and sharing the cost. Before you decide not to even give business services a chance, engage a CUSO to gain more insight and knowledge to the benefits and how they’ve been able to minimize risk to the credit union. Each Business Lending/Services CUSO may have a different model and profit goals, so be sure to ask the right questions.
5. “My credit union is too small to make commercial loans."
If that’s what is keeping you on the sidelines, let’s talk. Commercial lending is not one size fits all, and small and even micro credit unions have a place in their communities for making commercial loans. Small businesses need someone like credit unions that understand their challenges and needs. And you can offer the same products and services that other businesses get from the banks. It just takes a different approach. I’ve seen a $57 million credit union start a business services platform in their shop, and they engaged a Business Services CUSO to help them develop their business deposit products, and offer several treasury services products that small businesses need, and then start a small business lending program for delivering the right lending solutions using a fractional loan officer to provide guidance and expertise in developing those opportunities and relationships. It’s a huge win-win for the credit union and the communities they serve.
I know I am biased. I’ve been in the financial services industry for 50 years, and almost 40 of that has been in commercial lending. It’s something that I am as passionate about today as I was when I was first given the opportunity to jump from the consumer lending world to being a credit analyst, and I’ve never thought about doing anything else. But more than anything else right now, I see commercial lending as a way for credit unions to grow, to stay relevant, to stay independent if that is your strategy, and to maintain the credit union motto of “people helping people”. After all, isn’t that what we are all here for?
If you’re a credit union that’s been hesitant to jump into Business Services or Commercial Lending because of what you’ve heard, reach out to Innovative Business Solutions today. We’d love the opportunity to share how we minimize risk, reduce the cost, and add knowledge and value to your credit union.
