Room to Grow: Credit Union Business Lending
Credit unions today are restrained by statute and regulation from lending more than 12.25% of their assets to business, unless they qualify for one of several prescribed exceptions. This restriction continues while the commercial banking industry becomes more concentrated and the composition of its largest assets—loans—shifts away from commercial and industrial lending and toward various aspects of real estate lending. The percentage of bank loans to business has declined from 35% to 21% over the past 35 years while banks’ real estate lending has increased from 28% to 52% of total loans. Over the same period, the savings and loan industry has stagnated.
This study focuses on 120 credit unions located across 39 states and 96 counties. These credit unions loaned approximately 10%–14% of their assets to business at the end of 2012 and are the most likely candidates to exceed the 12.25% regulatory ceiling of assets loaned to business. The report assumes that credit unions that lent a significant amount of their assets to business in 2012 are important local business lenders. These credit unions are likely to expand their business lending beyond 12.25% of their assets if this ceiling is increased. Some business loan customers employ credit union loans to purchase real estate, automobiles, or other assets. The study provides a statistical model to explain credit unions’ business lending.
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