Most credit unions provide commercial loans, but when member companies request loans above a certain dollar amount, credit unions often have to refuse.
So four credit unions based in and around the Twin Cities of Minnesota decided to work together to keep these loans on their own books and out of the hands of the banks.
Affinity Plus Federal Credit Union in Saint Paul, Spire Credit Union in Falcon Heights, Hiway Credit Union in Saint Paul, and TopLine Federal Credit Union in Maple Grove recently established United Financials Capital, a credit union service organization focused on commercial lending .
Commercial lending was a logical starting point for the project, as the four credit unions already do a lot of lending in this space, said Michael Dalglish, president and CEO of the new organization.
Every credit union’s sweet spot for loans is now $5 million and below, but the UFC will give them the ability to fund loans up to $50 million — loans for large commercial and business projects. infrastructure in the upper Midwest that credit unions should have passed on. before, Dalglish said.
One of the factors limiting the size of loans is the corporate member loan cap, which currently limits credit union lending activity to 12.25% of assets. The risk and easy ways also make it difficult for smaller institutions to approve large loans.
“Before, we should have said, ‘No, it’s too big,'” Dalglish said. “Now we don’t have to say ‘no’ to our members anymore.”
Commercial banking groups have long argued against the proposed changes to the Member Business Lending Rule, saying the MBL cap already contains a number of exceptions that undermine its purpose and integrity. In recent years, credit unions have taken a bigger and bigger bite of the historical dominance of banks in the commercial lending market.
For the UFC, the plan is to eventually expand its portfolio beyond commercial loans, Dalglish said, but he declined to speculate on how credit unions might collaborate.
“As this organization grows, there is no doubt that we will look to other businesses that make sense to us,” he said.
Hiway Credit Union, with $1.7 billion in assets, had $115 million in commercial loans on its books at the end of 2021, according to call report data.
The four credit unions will share each loan, but not necessarily equally, Dalglish said. Factors such as corporate member loan limits, capital, and loan portfolio composition could play a role in how much each institution assumes.
It’s also possible that additional credit unions will be brought in to partner with specific loans or even the UFC as members, but Dalglish said it’s too early to tell.
“We’re looking to grow this platform and expand it, but today we’re just focused on getting things done with the four of us,” he said. “But it’s going to be bigger than the four long-term credit unions.”
And the UFC could be at the forefront of a move toward more such partnerships, said Tim Scholten, president of credit union and community banking consultancy Visible Progress.
Indeed, these organizations allow smaller players to compete on a larger scale and gain the expertise needed to compete effectively and maintain strong credit standards. Many smaller organizations may not have the expertise or size of assets to issue larger loans on their own, Scholten said.
“This shared approach allows them to compete on a larger scale and provide more sophisticated services to their membership base. I think that’s a trend we’ll see more of,” Scholten said.
Dalglish was less sure. “It’s a lot of hard work and it takes a special group of people to come together to do something like this. That’s why you don’t see it popping up anywhere.
He said talks about launching the group began in 2020, but the pandemic slowed its progress at first. The group has made UFC book loans in the past, Dalglish said, but declined to go into specifics.
Commercial lending is strong in the Twin Cities today, and UFC will provide a unique option for middle-market businesses looking to borrow due to the not-for-profit nature of partner credit unions, Dalglish said.
“There is nothing else like it in our market,” he said.