Credit unions poised to expand lending


By Jiyoon Jane Yu

Medill News Service

—  After being turned down for a bank loan, Matthew and Kelly Lembke received funds from a credit  union  to purchase a truck brokerage company.

The loan delinquency ratio for credit unions is less than 2 percent, compared with about 5 percent for banks. Source: Credit Union National Association.

“As our business grew, our line of credit also needed to grow in order to keep up,” said Kelly Lembke, co-owner  of Lembke Inc. in Normal, Ill.  

Since the couple first received funds in 2004, Peoria-based Citizens Equity First Credit Union has approved several increases to the company’s  credit line, which now has a limit of $625,000, Lembke said.

With banks holding back on small business lending, credit unions have picked up some of the slack, experts said. They are poised to lend more aggressively if Congress acts to lift an existing cap on loans.

Credit unions expand lending

“We see banks pulling back, but in contrast, credit union portfolios are growing,” said Mike Schenk, vice president of economics and statistics at the Credit Union National Association based in Madison, Wis.

Credit union loans in the United States climbed 6 percent to $38.54 billion during the 12 months ended Dec. 30, 2010. In Illinois, credit union loans rose 6 percent in 2010 to $895.9 million.

At the same time, the dollar volume  of small business loans held by depository institutions fell 6 percent in 2010 to $652.29 billion from $695.25 billion in 2009, according to the U.S. Small Business Administration’s Office of Advocacy.

Credit union business lending represents 5 percent of all business lending but would likely expand under the Small Business Lending Enhancement Act, Schenk said. The act  would boost the current lending cap on credit unions to 27.5 percent of assets from 12.3 percent of assets currently.

“Credit unions could land up to $13 billion in additional loans and 140,000 jobs throughout the nation in the first year after the cap is raised,” Schenk said. The quality of credit union loan portfolios puts them in a better position to lend than many banks, Schenk said.

Delinquency rate lower for credit-union loans

Credit unions’ 2010 net charge-offs, which are bad debt expenses that are deemed uncollectable, were roughly one-third the bank average, he said.

While the Small Business Jobs and Credit Act enacted last fall created a $30 billion pool of funds to encourage bank loans to businesses, after a low response, the Treasury Department extended the deadline for the program to May 16 from the end of March.

More capital available isn’t a guarantee that lending will take place, experts said. “There is definitely a little bit of caution” among lenders, said Brian McDowell, chief investment officer at Cascadia Wealth Management based in Tigard, Ore. “Most bankers do not want to take the risk of employing capital or making loans with the uncertainty of not knowing what the rules are,” he said.  

In addition, more small businesses are reluctant to take on more debt given the weak economic recovery. “If [owners] can get by without loans, they are doing so,” McDowell said.