9/21/13 An MBL Program Can Offer Great Promise « CU Insight

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An MBL Program Can Offer Great Promise

Posted by Carlton Roark on May 29, 2013

Member Business Loans (MBLs) can be excellent vehicles for achieving risk diversification and higher yields while
combatting shrinking margins and disproportionate exposure to potential losses on portfolios heavily weighted in
favor of consumer loans. However, if a credit union is not properly staffed at the executive and Board level to
implement and oversee an MBL operation, even when restricted to commercial real estate lending only, and if the
corporate culture is not conducive to its success, the consequences can be disastrous. Moreover, aside from the risk
of actual losses that are typically larger on member business loans, is the reputational risk associated with an
inadequately staffed or managed MBL program that can go awry and taint an organization’s standing in the
community and industry.

For some credit unions that are either new to, or less experienced in, business lending, the prospect of adding an
MBL program is often viewed as simply a way to exploit a new revenue source. However these credit unions may be Trending
oblivious to the potential liabilities associated with MBL programs and the many unique and subtle nuances involved
in their operation, a situation begging to be exacerbated when insufficient consideration is given to hiring 3 serious security flaws
adequately qualified and credentialed personnel. The propensity for this condition can be traced primarily to one
factor, the inherent culture predominant in the credit union industry and its regulatory body in which all lending is
1 your bank doesn’t want
you to know about
Posted 1 day ago
seen primarily through the eyes of consumer lending professionals.
Why don’t more

For example, while the minimum qualifications for an effective business lending professional in terms of education, 2 consumers use automatic
bill pay?
Posted 1 day ago
experience and credentials varies among banks, conventional wisdom in the banking industry dictates that it should
exceed the two years of direct experience only, that the NCUA under 12 CFR, Part 723.5 requires for a particular type Going from bad to worse –
of business lending. Granted, this is only a minimum that might be acceptable in a credit union with oversight by
several qualified and seasoned business lending professionals. However, 12 CFR, Part 723.5 unfortunately does not
3 Collections are a curse!
Posted 1 day ago
make that distinction or even stipulate what kind of direct experience is acceptable, rendering it possible for a credit
union to fully implement an MBL program staffed or even managed by an employee with not just two years of direct
experience only, but with two years of direct experience from on-the-job training at a credit union only, and with no
4 Build your people first…
Posted 1 day ago

post-secondary education as well since the NCUA is silent on the latter three issues altogether. This is a situation that
High-functioning credit
any seasoned business lending professional will tell you is woefully inadequate and something that commercial
banks would never settle for. Therefore, why is it acceptable for credit unions? To prevent anecdotal stories from 5 unions
Posted 1 day ago
circulating in our industry about grossly unacceptable MBL practices and lapses in judgment, credit unions should
Banks and credit unions:

6
revisit what constitutes a qualified business lending professional in view of commercial banking industry norms, not
We’re all in the retail
credit union industry norms. Flouting conventional wisdom in areas that credit unions lack expertise is a sure way to business
undermine the member confidence necessary to make our industry flourish. Posted 1 day ago
Budgeting for mobile and
While a treatise on the numerous pitfalls that can befall a credit union with an MBL program contemplated or
currently managed by those with primarily a consumer lending background is well beyond the scope of this article, a 7 online technology this
year and beyond
Posted 1 day ago
few of the lesser-known pitfalls are worth briefly mentioning, in particular those I would analogously characterize as

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9/21/13 An MBL Program Can Offer Great Promise « CU Insight
ill-fated attempts to forcibly fit a square peg (a consumer lending mindset) into a round hole (an MBL program). New study finds credit

Understanding MBL Relationships – In a consumer lending environment, outsourcing can be an effective cost-
8 unions face stiff
competition from online
savings accounts
cutting measure, but in a business lending environment where the relationship between the individual client and Posted 1 day ago
banker is borne of mutual trust and respect for each other’s area of expertise, and where the stakes and rewards
9 ways to simplify your
for client and banker respectively, are far greater, it can reflect a monumental lapse in judgment by those guided
primarily by their experiences in a consumer lending environment. Those with primarily a consumer lending 9 finances now
Posted 1 day ago
background might not recognize that outsourced relationships are essentially surrogate relationships, which by
Fed, merchants get
their very nature are disingenuous and incompatible with business lending. Forcing disingenuous relationships
onto an MBL portfolio comprised of members generally characterized as more financially sophisticated is the 10 expedited court action on
interchange appeal
Posted 1 day ago
quickest way to send at least the performing portion of that portfolio to your competition.

Objectively Assessing Comparative Risks – This is best illustrated as follows; those with primarily a consumer
News Archive
lending background are oftentimes more likely to see potential losses on say 1% of a credit union’s total loan
portfolio comprising member business loans generating higher yields and secured by income-producing September 2013
properties, as something more ominous and threatening than the far greater potential losses that can occur on August 2013
the remaining 99% of that loan portfolio comprising consumer loans generating the lowest yields and secured
July 2013
overwhelmingly by non-income-producing assets. Does this represent an objective assessment of comparative
June 2013
risk? The irony is that consumer lending environments tend to make those operating in them see less risk in what
May 2013
they are most familiar with only, despite the far greater proportional and aggregate risks.
April 2013
Psychology and Culture – Consumer lending professionals are predisposed to a certain mindset, elements of
which are sometimes simply not compatible with an MBL program. For example, the customer service motto so
prevalent and psychologically ingrained in the mind of consumer lending professionals that “the customer is
Community
always right” is a recipe for disaster in an MBL environment. Having consumer lending professionals function in
capacities suited for MBL professionals is also something that doesn’t go unnoticed by MBL clients who Frank Kovach
Mission Impossible:
sometimes see it as an internal form of outsourcing. If it’s reasonable to assume that MBL professionals fare Will Your Contact
better when their education, background, credentials and experiences are more closely aligned with the Center Accept?
prospects they are soliciting, shouldn’t that be our industry’s goal? Read More »

Devin Selte
Commercial Lending Intermediaries – Those with primarily a consumer lending background too often equate the The Top 10 Reasons
caliber, role and significance of commercial lending intermediaries with residential loan brokers because that Why You Should Be
Attending the
might be their only frame of reference. However, the use of high caliber commercial lending intermediaries is an WOCCU Conference in
absolute necessity for a successful MBL program and mishandling them or their clients through the use of Ottawa
unqualified MBL professionals can have long term adverse consequences on the success of your MBL program Read More »
and the reputation of your institution. Mike Moehle
Community-Based
Compensation Commensurate with Qualifications – Despite commercial banking industry practices to the Rewards: Local, Loyal,
Lucrative
contrary, some credit unions tend to equate the qualifications and compensation levels of MBL professionals with Read More »
those of an exceptionally qualified consumer lending professional. However, if credit unions with ambitious MBL see more »
programs want to successfully compete with commercial banks, then it only stands to reason they should seek
out and adequately compensate qualified business lending professionals in a manner comparable to their Jobs
banking counterparts. Those able to achieve greater revenues and yields for their employer while qualified to
mitigate the risks on more complex transactions warrant compensation at least commensurate with industry 3 available positions at People’s
norms. Trust Federal Credit Union
(Houston, TX)
Credit unions who subscribe to the idea that exceptionally qualified consumer lending professionals are an adequate VP of Member Solutions at
Northern Credit Union
and cost-effective substitute for qualified MBL professionals will ultimately learn that it’s neither to the consternation
(Watertown, NY)
of their Boards. If credit unions want a slice of the MBL pie without the requisite financial commitment of properly
President/CEO at Riverfront
staffing that program, the best alternative is MBL participations with a credit union properly staffed with qualified Federal Credit Union (Reading,
MBL professionals capable of originating quality member business loans. PA)
see more »

Carlton Roark
Carlton Roark is a commercial real estate lending professional with more than 25 years of
experience selling, managing and financing a variety of commercial property types. He is
also a licensed real estate broker with a B.S.B.A. degree in Real Estate Finance ...

Read More »

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