Dana Summer

Explore C&I lending opportunities

Understand these loans are different than other loan opportunities.

October 31, 2018

The local machine shop that needs $500,000 to finance a new CNC machine and woodworker who wants to start producing birdhouses on a large scale.

Both are opportunities for credit union to assist businesses with the fund needed to finance projects. And also form lasting relationships.

“We have the opportunity to get out and do different types of lending,” Dana Sumner, president/CEO of DFTC Inc., said during a breakout session Tuesday at the CUNA Lending Council Conference in Anaheim, Calif.

Commercial and industrial (C&I) lending focuses more on establishing a long-term relationship with the business rather than a single transaction. But it also requires credit unions to approach the loan differently, Sumner says. Some of these difference include:

  • Look at cash flow. Credit unions need to look at cash flow differently with C&I loans. This includes looking at a company’s balance sheet so they’re able to gain an understanding of the sources of the business’s cash and how it’s used, and the changes that happen over time. “We look at the balance sheet as assets and liabilities, but it’s not,” Sumner says. “It’s sources and uses of cash. Every move is a use or source of cash.”
  • Look at the business. Understand the business. Analyze it to determine what the business does, how it operates, who is involved, and who the competitors are. This requires time, energy, and effort, Sumner says, but “you need to understand the business you’re working with.”
  • Determine collateral. C&I loans are secured by collateral owned by the business. This can be various things, including equipment, inventory, or even in one case, bull semen, Sumner says. Make sure your credit union has the staff and resources necessary to collect and manage the collateral if you need to recover funds, Sumner says.
  • Understand new industries. Make sure you understand the business the loan is for, but also the internal and external factors that will impact the business. “We have so much information at our fingertips to understand these new industries,” Sumner says.

Credit unions are in the prime spot to explore C&I lending opportunities since they’re relationship-based, Sumner says.

“What do we create as lenders? Files. That’s not too sexy,” Sumner says. “But when you’re driving in your community and you pass a business where you funded equipment and that created jobs, that’s sexy. And it raises up the community. Not only does it make the small businesses stronger, but it also makes the credit union stronger.”

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