In any business lender program, basic training often says, “Tomorrow’s cash will pay off today’s loan.” That is, instead of anticipating the success or failure of the past, we need to understand what the future will be like. There is no doubt that when the credit union evaluates the loan over the past few years, it will face wild fluctuations and unusual conditions. These revenues and balances can fluctuate in both directions until they are gone. Let’s take a minute to review some recent trends with credit unions and business loans to see how your program should be adjusted in the future.
Blockbuster year despite the outbreak
First and foremost, 2020 was a very restrictive year for credit unions and 2021 does not seem to be a relief according to most reports. According to the NCUA Call Report, the number of business loans supported by credit unions increased by 12% compared to 2019. Last year, loans increased by 22% in dollars. These numbers are outside the SBA PPP loan program and are surprising considering that there was no new loan activity for a few months in the early days of the epidemic. The purchase price is a staggering 36% year-over-year, with many credit unions looking for outlets to increase liquidity.
As portfolios expand, the participation of general credit unions is relatively limited. A.D. By 2020, 869 credit unions reported financing for at least six member loans. That number has not changed in the last ten years. By the end of 2020, business loan portfolio will exceed $ 82 billion, an increase of 15% in 2019. The average business loan for 2020 was $ 390,000. Credit unions continue to gain experience in commercial lending, which has allowed them to increase the size and complexity of their financing loans.
The resurgence of small business
Now and for the next few years, the most exciting trend for credit unions is the resurgence of local small businesses. Many small businesses struggled last year with locks and handcuffs. These factors are declining rapidly and businesses need capital to grow or stimulate their operations. Credit unions need to be able to respond quickly and finance their growth. SBA loans and non-real estate loans can be a great way to help your local community. More than 90% of the loan industry industry’s commercial loans are secured by real estate. However, it may not be necessary for your members to be successful in the short term. In the past, the next step for a growing business was to buy a building that would support their expansion. As housing and hybrid offices become more formal, these businesses may need to finance growth outside of real estate. If their credit union is not ready to help, they may find another financial institution.
For many years, lenders have been cautious about commercial real estate lending to retail space, and now small office lenders are becoming more cautious about some other areas as well. All the items from the retail stores we missed are now in large industrial warehouses. If you order merchandise online, your food is usually supplied from a cold storage facility and will not be removed from the shelves of a local grocery store. Hundreds of millions of dollars will be spent on industrial space over the next few years until more space is replenished. Industrial space is often hidden from the public eye, so credit unions may need to educate workers and decision makers about the importance of industrial space lending in order to make better decisions.
Another trend to consider is not only the transition from cities to cities, but also the transition from block to market and from market to block. Population is changing rapidly, and people who have seen many newcomers in markets or suburbs can see the effects of those whips returning to their former homes. In large urban areas that have recently struggled, multi-family rental housing may continue to see rapid recovery or deterioration. Environmental policies of governments and employers can have a significant impact on the supply or demand of rental housing or office space. Are you requesting a participation loan from your market? Read local news outlets about what’s happening, or better yet, visit the property and location to get better information about the credit you plan to buy. Relying on old industry data or past financial information can put your credit union in jeopardy. Just as 2020 saw unprecedented economic transitions, you can see the waves go back and back to normal figures.
Look to the future for smart credit decisions
Loan rates are strong for the credit union business board. However, the key to making good credit decisions is not only to look at the past, but also to respond to rational predictions for the future. A.D. By 2020, strong businesses were having a terrible financial year for reasons beyond their control. 2020 also saw “epidemic winners” and record sales and profitable businesses. Markets change and return to place. Getting ready to help small businesses and control the real estate market will help your credit union succeed in the years to come.
Mark Reiter is the CEO of CUSO Business and Financial Services Services and its subsidiary, Nu Direction Loan, Philadelphia, PA.