Stronger together: How CUSO partnerships unlock business lending growth

Collaboration has always been the hallmark of the credit union movement. From pooling capital to serving communities overlooked by traditional banks to advocating for cooperative principles on the national stage, credit unions thrive when they work together. That same cooperative spirit is driving one of the most important growth frontiers today: business lending.

Business lending is a powerful lever for growth. It diversifies loan portfolios, generates strong non-interest income, and helps credit unions remain competitive in an increasingly crowded financial services marketplace. Perhaps most importantly, it enables credit unions to meet the needs of small businesses: the entrepreneurs, shop owners, and service providers who are the backbone of local economies.

Yet for many credit unions, launching or expanding a business lending program is easier said than done. Expertise, infrastructure, compliance, and risk management often create barriers that stop institutions before they even get started. The good news? The credit union system already has a proven model for overcoming these barriers: Credit Union Service Organizations (CUSOs).

At first glance, business lending may seem like a natural extension of what credit unions already do. But the differences between consumer and commercial lending are significant.

For one, business lending requires a specialized skill set. Underwriting a commercial loan is more complex than evaluating a consumer credit report. It involves analyzing business financial statements, assessing cash flow, and understanding industry-specific risks. This expertise takes years to develop, and many credit unions simply don’t have the staff—or the resources to hire and train new staff—to build this capability internally.

Staffing itself presents another challenge. Even if a credit union is willing to invest, the cost of adding a dedicated business lending team can be prohibitive, particularly for small and mid-sized institutions. And without meaningful loan volume, those staff investments can be difficult to justify.

Compliance adds yet another layer of complexity. Regulations surrounding business lending are more demanding than those for consumer loans, requiring specialized systems and oversight. For a credit union already stretched thin meeting its existing obligations, the idea of adding a new regulatory burden can feel overwhelming.

And then there’s risk. A credit union may issue thousands of consumer loans, each for relatively modest amounts. Business loans, by contrast, are typically larger. Even a few defaults can have an outsized impact on financial performance. Managing that risk requires not only skill but also scale, something many credit unions cannot achieve on their own.

This creates the “chicken-and-egg” dilemma. To succeed in business lending, credit unions need infrastructure, expertise, and scale. But to justify building that infrastructure, they first need volume. It’s a cycle that keeps many on the sidelines, even as demand from members grows.

The trajectory of credit union business lending over the past several years underscores both the opportunity and the challenge. Between mid-2017 and 2021, federally insured credit unions in the United States increased their business loan balances from roughly $64 billion to over $97 billion. That represents more than 50 percent growth in just four years, according to Federal Reserve data. Yet, despite that sharp increase, business loans have consistently accounted for less than five percent of total credit union assets, indicating that most institutions still treat this area as supplemental rather than core to their lending strategies.

Growth has only accelerated since then. By 2022, credit unions had collectively surpassed the $100 billion mark in outstanding business loans. During that year alone, the portfolio expanded by nearly 19 percent, with a six-month period showing double-digit growth of 12.7 percent. Even with this momentum, business lending still represented just over five percent of assets across the industry. That percentage reveals a gap between the demand for credit and the share of resources credit unions have been able—or willing—to commit.

Participation is expanding, but unevenly. More than 2,000 credit unions currently offer some form of business lending, and about 18 percent of them have business loans that make up at least five percent of their total portfolio. A decade ago, that figure was closer to eight percent. The trend suggests that credit unions are becoming more serious about the role business lending plays in their future, but adoption remains concentrated among a minority of institutions.

Looking specifically at Small Business Administration (SBA) lending, the national market reflects surging demand. In fiscal year 2024, the SBA backed $56 billion in financing, the highest total in recent years. Over 100,000 small business loans were granted, many of them through small-dollar loans targeted at underserved entrepreneurs. Credit unions are part of this story, though their share remains relatively modest. In 2019, for example, 355 credit unions held SBA loans with a combined outstanding balance of $1.89 billion. That translated into an average of just 16 SBA loans per participating credit union, with an average loan size of about $341,000.

This data points to both promise as well as unrealized potential. Business lending among credit unions is growing faster than many other segments of the balance sheet, yet it remains a small slice of overall assets. SBA programs offer an important entry point but remain underutilized by the majority of institutions. In short, credit unions are moving into business lending, but the industry has only begun to scratch the surface of what is possible.

This is precisely where the CUSO model proves its value. Instead of each credit union building a business lending platform from scratch, they can collaborate through a CUSO to access the resources they need.

CUSOs recruit experienced staff who specialize in commercial lending. These professionals understand the nuances of business underwriting, servicing, and portfolio management. Credit unions gain the benefit of their expertise without bearing the full cost of hiring, training, and retaining those employees on their own.

Technology is another key advantage. Modern business lending requires robust systems to manage applications, underwriting, servicing, and compliance. Through a CUSO, credit unions can access state-of-the-art platforms that might otherwise be out of reach.

Risk is also shared. Loan participations, coordinated by the CUSO, allow multiple credit unions to participate in a single loan. This spreads exposure across several balance sheets, reducing the impact on any one institution while enabling credit unions to serve larger and more complex business members.

Flexibility is built into the model. A credit union can choose how deeply to engage, scaling participation based on its size, lending goals, and membership demand. For some, that may mean dipping a toe in the water by participating in loans originated by others. For others, it may mean fully leveraging the CUSO to build a comprehensive program.

The end result is a level playing field. Smaller credit unions gain the ability to collaborate with larger institutions, while larger credit unions benefit from shared risk and efficiencies.

The benefits of business lending extend far beyond the loans themselves. When a credit union can serve its members’ business needs, it deepens the overall relationship. Small business owners often want the convenience of having their personal and business finances managed under one roof. By offering these services, credit unions position themselves as true full-service financial partners.

These relationships also create ripple effects. A business member is likely to bring deposits, merchant services, and personal accounts, increasing the overall value of the relationship. They are also typically highly connected in their communities, often serving as ambassadors who refer friends, employees, and family to the credit union.

From a brand perspective, business lending underscores the credit union’s commitment to community development. Every small business loan represents jobs sustained, storefronts opened, and local economies strengthened. In an era when consumers increasingly seek out financial institutions that align with their values, this community impact enhances reputation and reinforces the cooperative difference.

For credit unions, business lending represents both a challenge and an opportunity. The barriers are real, but so is the potential for growth and community impact. By leveraging the CUSO model, institutions can overcome the challenges of expertise, compliance, and risk while stepping confidently into a space that has long been dominated by banks.

Collaboration is not new to credit unions. It is the foundation on which the movement was built. In business lending, collaboration is not just an option: it is the advantage. With partners like Member Business Financial Services (MBFS), credit unions of every size can access the resources, expertise, and shared risk needed to thrive.

The future of credit union growth lies in moving forward together. The question for credit union leaders is not whether business lending matters; it’s how they will seize the opportunity. For many, partnership will be the most powerful path forward.