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Credit Unions Growing Commercial Lending Business

Jul 2011

Credit unions are expanding to fill a void in small 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 Corporation (FDIC) 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%, while bank business lending is down 3% -- a decline of about $95 billion, according the Credit Union National Association.

One tool that is helping credit unions achieve these increases in business lending is the Small Business Administration's (SBA) 504 loan program.

By partnering with Florida First Capital in the 504 loan program, credit unions are able to offer their small business members up to 90% financing at below-market fixed interest rates and amortization terms to 20 years for the purchase owner-occupied commercial real estate and/or long-life machinery and equipment.

Projects start at $125,000 and thanks to recent Congressional changes to the program, 504 loan amounts are now up to $5 million for standard projects and $5.5 million for manufacturing and green initiative projects (SBA amounts only; no limit on overall project size).

The key to the 504 loan program is its distributed credit structure, whereby the credit union takes a first lien position (50%) thus limiting its exposure and preserving its portfolio cap. FFCFC takes a second lien position (40%) and the small business member puts down 10%. Under this structure the credit union can relieve the 80% LTV restriction, allowing it to offer up to 90% financing and compete with other lending institutions.

Credit unions can also take advantage of the temporary new debt refinancing program whereby members with eligible commercial real estate mortgages can take advantage of stable and long-term 504 financing and thus avoid potential foreclosure on mortgages approved before and during the recession that were based on inflated real estate values.

Under the debt refinancing program, members can refinance up to 90% of the current appraised property value or 100% of the outstanding mortgage, whichever is lower. Existing 504 projects and government-guaranteed loans are not eligible to be refinanced.

Another advantage for credit unions participating in the 504 loan program is they pay no intangible tax. And under the FFCFC Loan Pooling Program, credit unions can sell their 504 first mortgages on the secondary market for substantial fee income and preserved liquidity.

The 504 loan program is a win-win for credit unions and their small business members. The program lets small business members continue to use their hard-earned capital, while gaining the capital-generating benefits of owning commercial property. Project costs are financed in their entirety with the 504 loan, unlike most conventional bank loans, which only finance a percentage of the purchase price/appraised value. Additionally, if borrowers decide to sell their property, 504 loans are assumable.

For more information about 504 loans in Florida, or to schedule a free lunch-n-learn mini seminar (with lunch on us), contact Florida First Capital by visiting www.ffcfc.com, emailing at insider@ffcfc.com or calling 888.320.5504.

Click here for a listing of FFCFC regional office locations and loan officer contact information (pdf).