Credit unions get busy with commercial lending

July 12, 2011

WASHINGTON – July 12, 2011 – Muhammad Abdullah needed a line of credit to fill large orders from customers of his safety and medical-supplies business, but he couldn’t get help from a bank. So he turned to a credit union.

He got the line of credit, and now he’s taking orders he wouldn’t be able to otherwise.

“It’s not the normal way, but I guess I’ve been doing business with credit unions personally for a good while,” said Abdullah, who owns Legacy Business Group in Des Moines.

Credit unions are expanding to fill a void in business lending left by banks since the financial crisis. As banks have been slow to start lending again, credit unions have gotten a head start.

Banks still carry about 12 times as much in loans as credit unions in America, according to Federal Deposit Insurance Corp. statistics. But over the past two years, those numbers have trended in opposite directions, and officials at major credit unions say they are more interested than ever in commercial lending, not traditionally the core function of a credit union.

From March 2009 to March 2011, total loans by banks declined by more than $500 billion, according to FDIC data. Over the past year, credit union business lending is up 5 percent, while bank business lending is down 3 percent a decline of about $95 billion, according to the Credit Union National Association. Pat Keefe, a spokesman for the association, said credit unions are pushing into business lending in part because of slow demand for consumer credit auto and home loans, for instance.

“Businesses are looking for new sources of credit; credit unions are looking for new sources of borrowers,” he said. “They’re improvising strategies to do business lending.”

In January, Abdullah’s company took a $60,000 order for fire extinguishers, fire extinguisher cabinets, white boards, bike racks and other things needed for an Armed Forces Readiness Center in Middletown, Iowa. Legacy Business Group suffered in 2009 and 2010, and Abdullah couldn’t get a bank to extend him a line of credit, he said. Then he saw an article about Veridian Credit Union.

“They said they want to work with small business, and so we called them,” he said.

Veridian offered him a $25,000 line of credit, and he said it has helped him deliver on the big jobs that pay the bills.

Competing with the big boys

In Iowa, Veridian is now a larger financial institution by assets than all but three of Iowa’s banks. John Poley, who was a banker for 20 years, has been head of commercial lending for Veridian since 2008. He said the credit union’s business lending was up 80 percent from 2009 to 2010, with most of the growth coming in metro Des Moines.

“We do everything. We’ll do your little mom-and-pop start-ups, manufacturing, industrial,” he said. “If we had to pick the one that we have the most exposure in, it would be real estate, I suppose.”

Poley said credit unions avoided the bad loans in commercial real estate that have plagued many banks since the financial crisis, and credit unions have been freer to lend.

“We’re still doing everything we’ve ever done. We just so happen to be able to now step into a void in that lending space that they’ve created,” he said.

Credit unions are pushing federal legislation that would lift a regulatory cap on their business lending. They are allowed to make loans equaling up to 12.25 percent of their total assets. Bills in both the U.S. Senate and House of Representatives would raise the cap to 27.5 percent. Both bills have been referred to committee.

The American Bankers Association opposes the legislation. Chairman Stephen Wilson testified at a Senate hearing in June that the bill is “nothing less than legislation that would allow a credit union to look and act just like a bank, without the obligation to pay taxes or have bank-like regulatory requirements applied to them.”

Banking executives believe credit unions’ non-profit status and exemption from federal income tax is already an unfair advantage, and they argue the increased emphasis on commercial lending calls the advantage further into question.

Copyright © 2011 USA TODAY, a division of Gannett Co. Inc., Adam Belz, USA TODAY. Belz also reports for the Des Moines Register.

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