Filene study: Credit unions have room to grow business lending
Small businesses, local communities could benefit, according to research underwritten by CUNA Mutual Group
MADISON, WI (August 19, 2015) — Business lending presents an opportunity for credit unions that is ripe for growth and could be beneficial to local communities, according to a new study published by the Filene Research Institute and funded by CUNA Mutual Group.
The timing of the study titled, “Room to Grow: Credit Union Business Lending,” is significant, as the public may submit comments to the National Credit Union Administration through month-end on the agency’s proposed member business lending rule modifications.
The business loan market offers credit unions opportunities for growth and to provide economic support for their communities, according to the study authored by David A. Walker, Ph.D., who is the John A. Largay Professor at the McDonough School of Business, Georgetown University.
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. According to the study, the commercial banking industry is becoming more concentrated and focusing more on real estate lending and less on commercial and industrial lending. Over the past 35 years, the percentage of bank loans to business has declined from 35 percent to 21 percent, while banks’ real estate lending has increased from 28 percent to 52 percent of total loans1.
Credit unions are currently restrained by statute and regulation from lending more than 12.25 percent of their assets to business unless they qualify for certain exceptions1.
“An important policy question is whether credit unions should be limited to 12.25 percent of their assets in business lending,” said George Hofheimer, chief knowledge officer at the Filene Research Institute. “This study shows clearly that many credit unions can fill a business lending gap in their communities.”
The study focused on 120 credit unions located across 39 states and 96 counties1. Credit unions in the study were all approaching the regulatory cap for business lending. “Credit union business lending is primarily to small businesses, and it is well established that small firms are the engines of economic growth for many aspects of the U.S. economy,” the report states. “Increasing the percentage of total assets that credit unions may lend to business should be beneficial to local communities.”
Even when consumer lending demand is low, credit unions are finding ways to lend to businesses in their communities. In counties with larger banks and savings institutions, on average, credit unions do more business lending, according to the study.
“This is important research that we were confident would produce significant results that can potentially benefit the credit union system and small businesses,” said Christopher Roe, CUNA Mutual Group senior vice president for corporate and legislative affairs. “That’s why we chose to fund the study under the direction of the Filene Research Institute.”
The findings indicate a need for small businesses to gain greater access to credit, and credit unions have an opportunity to fill the void being left by commercial banks, which will potentially provide economic benefits, Roe added. “We plan to submit the report to the NCUA with our public comment letter advocating the agency’s proposed member business lending rule changes.”
More information about the member business lending research study and its findings can be found at https://filene.org/research/report/room-to-grow-credit-union-business-lending.
Photo captions: (left to right) Chris Roe, George Hofheimer
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About Filene Research Institute
Filene Research Institute is an independent, consumer finance think and do tank www.filene.org/about dedicated to scientific and thoughtful analysis about issues affecting the future of credit unions, retail banking and cooperative finance. Founded over 25 years ago, Filene is a 501(c)(3) nonprofit organization. Nearly 1,000 members make the nonprofit’s research, innovation and impact programs possible. For more information, visit www.filene.org.
