We tend to think of business lending (or commercial lending) as providing loans to finance a business or a farming operation. While anything having to do with business and agriculture is quite broad, it is still somewhat limiting.
I tend to think of business lending as any type of lending that is not consumer lending. This makes the concept of business lending broader and doesn’t just stop with businesses and farming. This can include governments, non-profits, co-ops, etc. If a consumer loan won’t work, there is probably a business loan solution to it, even if it isn’t technically a business.
Co-ops may not seem like business lending targets, but you should seriously reconsider your thinking. In the Dakotas particularly, many co-ops are large with healthy balance sheets and ample liquidity. These same co-ops may also want to finance large capital expenditures or even want an operating line of credit. And best of all, they tend to be better governed than typical businesses, since the shareholder base is diverse.
Much like co-ops, non-profits can have strong financials as well. What you will find with non-profits and co-ops is that their financial reporting and business cycle may be somewhat unfamiliar. They will abide by different accounting standards, which are driven by what their charter will and won’t allow them to do. Many assets may be restricted, temporarily restricted, or unrestricted for certain purposes. And on the income side, you will see a similar delineation of accounts. Also, income may be “lumpy,” meaning it tends to be inconsistently timed. Non-profits, engaged in direct charity, may show a net income loss for most of the year, and then an enormous revenue spike in December during the “giving season”.
In my career, I’ve helped non-profits finance great real estate assets, which represented acceptable lending risks that were “no-brainers”. And some were great guarantors as well, with good balance sheets and income statements. On the C&I side of lending, I helped underwrite a loan to the airline trade association to help modernize the national airline reservation system. Again, based on the financials, it was no-brainer, but not the type of request that first comes to mind when you’re thinking of business loan opportunities.
Financing government can be another great opportunity. Again, broaden your thinking. Even local government can be quite diverse. This may include loans directly to specific city departments, or to the entire city, or county, or even the State. Sometimes, these governments help create economic development authorities, in which the government may or may not have an obligation to help repay any borrowings. And, the financial accounting will be different for governments too. Despite the special considerations, there can be great lending opportunities if the obligor has strong financials and a project that makes sense.
A credit union should never have to send a member or a community organization down the street to the local bank. If the credit union encounters a loan request they are unfamiliar with, talk to us, because our CUSO was founded to address these kinds of problems. And don’t be afraid to broaden your lending opportunities too, because non-profits, co-ops and governments can be great business lending targets.