Credit unions have built their reputation on trust, accessibility, and a deep commitment to the communities they serve. Traditionally focused on consumer banking, offering services like savings accounts, car loans, and personal credit, they’ve long been a financial haven for individuals and families seeking a more personal touch than what big banks provide.
But as the needs of their members evolve, so must their product offerings. Small businesses are increasingly looking for lenders who understand their unique challenges and can offer more than just capital. This shift presents a significant opportunity for credit unions to step in, not just as financial service providers, but as long-term business partners.
Business lending is no longer a niche or optional service. For credit unions looking to grow, deepen member relationships, and remain competitive, it’s a strategic next step. Let’s delve into the growing momentum behind lending in the credit union space and explore how your organization can build a successful, sustainable, member-focused program.
The growing appeal of business lending for credit unions
As credit unions seek new ways to grow and stay relevant in an increasingly competitive financial services environment, business lending presents a compelling opportunity. Expanding into commercial services can support institutional goals while strengthening member relationships and enhancing the overall value proposition. Here’s why more credit unions are moving into this space.
Revenue diversification
Traditionally, credit unions have relied primarily on consumer lending for revenue. However, rising competition and tighter margins are pushing credit unions to diversify their income streams. Business lending offers an attractive alternative, providing higher yields and longer-term relationships that can balance the loan portfolio and drive sustainable growth.
Member retention and growth
Many credit unions already serve members who are small business owners, freelancers, and entrepreneurs. By expanding into business lending, credit unions can meet their members’ evolving needs and deepen relationships, providing value throughout the member’s financial lifecycle.
Competitive positioning
With fintechs and traditional banks aggressively courting small businesses, credit unions risk becoming irrelevant when they don’t offer commercial services. Business lending enhances a credit union’s ability to compete, especially when paired with the hallmark personalized service that sets credit unions apart.
Increased deposits and liquidity
When credit unions attract businesses, the benefits go beyond lending. Businesses often bring with them a suite of deposit accounts, along with primary operating accounts, payroll accounts, and additional savings or reserve accounts. This leads to increased liquidity for the credit union. Furthermore, the principals of these businesses, along with their employees, frequently move their personal accounts to the credit union for convenience, including direct deposit of paychecks and access to integrated financial services. This ripple effect helps credit unions grow both their commercial and retail member base.
Post-pandemic economic shifts
COVID-19 reshaped the small business landscape. Many business owners emerged from the pandemic seeking local, mission-driven financial partners. This is exactly the role credit unions are designed to fill, making the demand for business capital, flexibility, and trusted guidance higher than ever.
While the benefits are clear, entering the business lending market is not without its challenges. Business loans differ structurally from consumer loans and come with their own unique risks, compliance requirements, and operational demands. To succeed, credit unions must prepare for the complexities involved.
- Risk management and underwriting complexity: Business loans carry a different risk profile than consumer loans. They require more complex underwriting, analysis of cash flow, business plans, and collateral. Without the right systems, credit unions risk mispricing or misjudging loans.
- Regulatory compliance (NCUA, SBA): Navigating the rules from the National Credit Union Administration (NCUA) and complying with Small Business Administration (SBA) lending standards demands specialized knowledge. Failing to meet requirements can result in regulatory penalties or loan losses.
- Expertise gap: Consumer lending teams may lack the experience to handle business loans. Without dedicated commercial lending staff or partners, credit unions could face delays, inefficiencies, and misaligned expectations.
- Member expectations: Members used to the warm, relationship-driven service of a credit union may be surprised by the rigor of business lending. Credit unions must balance their member-centric culture with the discipline required for sound commercial lending.
How to do business lending right
Successfully launching a business lending program requires more than good intentions. It takes strategic planning, the right talent, and a strong foundation of infrastructure and support. By following a set of proven best practices, credit unions can create a business lending approach that is both sustainable and aligned with their member-first mission.
- Start with a strategic assessment: Before diving in, credit unions should evaluate their local market demand, internal capacity, and risk appetite. Is there a gap in small business lending in the community? What sectors are thriving? What’s the credit union’s tolerance for long-term and higher-risk investments?
- Build the right infrastructure: This means creating or enhancing loan origination systems, setting clear credit policies, implementing underwriting guidelines, and developing procedures that support consistent, compliant lending practices.
- Hire or partner for expertise: Success starts with the right people. Hiring seasoned commercial lenders or partnering with a credit union service organization (CUSO) can provide the expertise needed to jumpstart and manage a business lending program.
- Focus on relationship-based lending: Relationship lending is a natural fit for credit unions. Business owners appreciate lenders who understand their business, listen, and advocate for them. Leveraging this strength can create long-term, loyal partnerships.
- Offer a full suite of services: Lending is just the beginning. Treasury management, business checking accounts, merchant processing, lines of credit, and even financial education can help small businesses thrive. It also helps the credit union become indispensable.
- Educate your staff and members: Equip frontline staff to identify business opportunities and speak confidently about commercial products. At the same time, provide educational content and resources for members who may not realize their credit union offers business solutions.
The role of collaboration and CUSOs
No credit union has to do it alone. Collaboration is the cornerstone of the credit union movement, and it continues to play a crucial role in enabling credit unions to deliver new services efficiently and effectively. Credit union service organizations (CUSOs) offer a compelling way to scale quickly and smartly.
- Sharing risk and resources: CUSOs can help smaller credit unions mitigate risk by pooling lending resources and back-office operations, thereby enhancing their financial stability. This collaborative model also allows for greater loan capacity without overstretching internal teams.
- Access to business lending expertise: A CUSO focused on commercial services can bring in specialized talent, underwriters, processors, and SBA lending experts, who can manage the complexity that a credit union might not be equipped to handle alone.
- Speed to market: Rather than spending years building a business lending division from scratch, credit unions can partner with or invest in a CUSO to accelerate their launch and begin servicing members more quickly.
Business lending has evolved from a niche service into a strategic imperative for credit unions looking to grow, remain competitive, and better support the communities they serve. While the journey comes with its share of challenges, a well-planned approach, one grounded in member service, collaboration, and smart strategy, can pave the way for lasting success.
The opportunity is here. With the right foundation and trusted partners, credit unions are well-positioned to drive meaningful impact, one local business at a time.