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Credit unions evolve to get competitive on commercial lending

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when he began leading commercial lending at Lake Michigan Credit Union in 2011, Jim Maskell occasionally found surprise among prospective clients.

Their reaction: “Huh — you do that? You’re in that line of business?” said Maskell, a senior vice president and group president for commercial lending at the Grand Rapids-based Lake Michigan Credit Union.




That response has changed considerably over the years as LMCU grew to become the largest credit union in the state with 40 offices statewide, plus 20 branches in Florida, and more than $12 billion in assets. Since moving into commercial lending in 2009, LMCU has gone on to become a significant commercial lender, as small business owners increasingly perceive credit unions as an option for credit.

At the end of the third quarter, Lake Michigan Credit Union’s commercial loans totaled $1.26 billion, an increase of 23 percent from the start of 2022 and a growth rate that’s in line with what credit unions that offer loans to small businesses have achieved this year.

“More and more people are recognizing us as a possible solution,” Maskell said. “We are becoming more recognized and known by folks in the market.”

As LMCU grew over the years, it gained the ability to underwrite larger credits, Maskell said. The credit union’s wheelhouse for a business loan is $5 million to $10 million, although it can go higher, he added.

Commercial loan growth of late has included business with commercial real estate developers who were once hesitant to consider Lake Michigan Credit Union. “They didn’t think of us,” Maskell said, noting that changed as the credit union grew and the commercial lending arm began offering larger and more complex credits.

“We’re able to provide those types of credits in the numbers that they’re looking for,” Maskell said. “Now they are (thinking of us) because they dipped their toe in the water with a transaction or two, the process has run smoothly, we delivered what we said we were going to deliver, and it just starts to snowball. All of a sudden, you go from one or two projects with them to five or six projects with them.”

Changing landscape

Across Michigan, credit unions that once primarily provided retail loans and deposit accounts have been steadily expanding their commercial loans as they’ve grown and built an infrastructure for business lending and created greater competition for banks.

To that end, credit unions have recorded strong growth rates throughout this year.

A recent report from the Michigan Credit Union League noted that commercial loans statewide by credit unions grew 26.9 percent over 12 months to $6.54 billion as of June 30.

In five of the six prior years before 2022, credit unions in Michigan grew commercial loans at double-digit rates, according to MCUL data. Three of the past six years had growth rates above 20 percent, including 23.8 percent in 2021.

More than 62 percent of the 201 credit unions in Michigan do commercial lending in some form, which compares to 37 percent nationally, according to the MCUL. The larger the credit union, the more likely it is to have commercial lending. More than nine in 10 credit unions with $250 million or more in commercial lending assets.

The growth has come as many credit unions got into offering services for small business such as treasury and cash management and competed more directly with banks. Some credit unions underwrite commercial loans in house, and others go through a CUSO, or credit union services organization.

Among other larger West Michigan credit unions, Kalamazoo-based Advia Credit Union — the seventh-largest in the state with $2.86 billion in total assets and more than 195,000 members through 28 offices — grew commercial loans by 16 percent from Jan. 1 through the end of the third quarter to $359.2 million, according to a quarterly financial report to federal regulators.

“We’ve been going gangbusters and are going to exceed our production goals for 2022,” said Eric Stoll, Advia Credit Union’s vice president of commercial services. “It’s obviously starting to slow a little bit right now with the increase in interest rates and sort of the uncertainty in the economy, but overall we’ve had a fantastic year.”

Stoll attributes the growth rate to the maturation of business lending at both Advia and in the industry, as well as the development of talent and expertise. The landscape for commercial lending at credit unions “looks a lot different today” than 11 years ago when he started at Advia after moving from a regional bank, Stoll said.

“Commercial lending does take some time to get a good grasp of and develop the experience you need,” he said. “Credit unions have kind of hit that mark.”

Work in progress

Other larger credit unions based in West Michigan also recorded strong commercial loan growth through the first nine months of 2022.

At Berrien Springs-based Honor Credit Union, commercial loans grew more than 25 percent this year to $174.4 million. Honor has 29 offices with 105,934 members and $1.55 billion in assets.

Consumers Credit Union, based in Oshtemo, grew commercial loans 18.6 percent in the first three quarters of 2022 to $211.5 million as of Sept. 30. The credit union has 27 offices with 131,785 members and $2.02 billion in assets.

For years, Consumers Credit Union focused on commercial lending to diversify its overall loan portfolio. The goal is to get commercial loans to 12 percent or more of assets, President CEO Scott Sylvester said.

“That’s still a work in progress, but if we’re growing our business loans more than 18 percent, we’re doing pretty good,” Sylvester said.

Consumers Credit Union primarily targets owner-operated small businesses for commercial loans, said Chief Lending Officer Scott Owens, a veteran lender who joined the credit union in 2009. Most loans are less than $2 million, although Consumers has the ability to go up to $20 million, Owens said.

Credit unions have evolved to the point where many small businesses are more aware of the commercial loans and services they offer, although “they are surprised when they hear we can do a $15 million deal,” Sylvester said.

Much of the commercial loan demand lately has come from businesses investing in new equipment and real estate financing, Owens said. Future growth will also come from new offices that Consumers Credit Union opened last year in Muskegon, Grand Haven and Lansing, he said.

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