MADISON, Wis. (12/31/14)--It's all about risk and reward. Of course credit unions want to take part in the rewarding experience of lending to small local businesses. But there's no question member business lending (MBL) carries risk, in part because repayment hinges on the success of those businesses.
In a new white paper, the CUNA Lending Council discusses a major component of member business lending that, when handled correctly, can help credit unions curb that risk: commercial collections.
"For an MBL program to be successful, it is critical that the credit union does not focus solely on the lending side," the paper's authors write. "Collections play an important role in the success of MBL, and while it's true that the most effective way to minimize delinquency is high-quality underwriting and servicing of loans, credit unions will undoubtedly have some delinquent loans."
Called "Commercial Collections: A Partnership Between the Collector and the Loan Officer," the paper tackles subjects such as being ready to make member business loans, differences in collection types and the cost of commercial collection.
The paper also covers receivership issues, recruiting and training commercial collectors, tools and technologies, and integrating lending and collections.
Among the many lessons touched upon in the white paper, perhaps one of the most important for a credit union to understand is the importance of quality staffing.
Significant differences exist between consumer lending and member business lending, the paper argues, which means credit unions will likely have to employ lenders and collectors with more complex skill sets and experience.
"If your credit union hasn't hired staff with that experience, or outsourced some or all MBL origination and servicing, it's probably not a good idea to offer the product," the paper said.
Skilled collectors on the other hand can identify those moments when loans run into trouble, and can work closely with borrowers to help find and resolve issues. These experienced individuals can also work with business lending staff to help prevent or minimize losses.
"There are similarities (between consumer and business lending) too, but with commercial loans there's a larger exposure because of the loan amounts, so you have to be proactive," said Steve Miller, president of TwentyTwenty Analytics, Clearwater, Fla., in the paper. "Stay in contact with borrowers, maintain ownership of the accounts and pay attention to what's happening."