Tough economic times have put small to medium sized companies between a rock and a hard place. They need a commercial loan to finance real estate and equipment, but have found it increasingly difficult to qualify with traditional banks.

Luckily, in the past year, more companies have turned to their friendly neighborhood credit union for commercial loans, which is keeping many folks in business and adding jobs to a shaky economy.

According to the Federal Deposit Insurance Corporation, banks still provide 12 times the number of loans as credit unions, however a credit union commercial loan trend is brewing in the small business marketplace.

The FDIC reports that between 2009 and 2011, banks denied more than $500 billion commercial loans, which has sent many companies seeking solace from a credit union. This year credit union commercial loans are up by 5%, while bank commercial lending has dipped 3%. The Credit Union National Association (CUNA) equates this trend to a decline of $95 billion.

David Donovan, VP/Commercial Services at USC Credit Union ($346 million, Los Angeles, CA) says his credit union is the "go to" financial institution for many area businesses.

"Credit unions offer an alternate source of capital for members who may have first gone to a larger national bank and been declined for any number of reasons, he says. "While we share many of the same underwriting guidelines that banks do, we always try to keep the member and their goals in mind, and don't reject anyone's loan request without careful consideration."

Credit Unions Diversify Loans to Help Businesses

Donovan explains that although his credit union provides more of a helping hand to companies, he notes that a broader offering will help more businesses.

He says that commercial lending at USC Credit Union started out slowly in 2005 and grew at a strong pace after 2007 when a highly experienced lender came on board.

However, he says that the credit union has been able to truly widen its reach with SBA lending. "We developed strong ties with the local district office of the U.S. Small Business Administration, and became an SBA PLP (Preferred Lending Program) partner shortly after that. Our business lending portfolio is currently over $10 million and largely consists of SBA loans at this point."

He adds that traditional low credit union rates and service helps solidify the deal. "Since credit unions are not-for-profit, in many instances we're able to offer lower rates and fewer fees on our commercial loan products, since we don't have to answer to shareholders who are looking for a profit."

"In the end, it's all about providing the best rates and services for our member/owners. It's important for credit unions to offer commercial lending because the demand from our membership is there, and on the whole, credit unions are well-capitalized and can support these services," Donovan says.

Still Growing, but Credit Unions Face Challenges

Although the news is positive, Donovan says that the industry continues to combat a few hurdles. Basic program awareness seems to be one obstacle nearly every credit union must overcome.

"I can't tell you how often I hear the phrase, 'I didn't know you even existed/do commercial loans.' Once a member realizes that we're a full-service financial institution and have an array of products and services available to them (including a full suite of commercial loan and deposit options), the battle is largely won, since we can often offer superior rates and always offer superior service to our members."

"The loan products themselves are largely homogenous , an SBA loan from us is basically the same as from anyone else, due to the nature of the government-backed program," Donovan explains. "Where credit unions set themselves apart is our dedication to our members and providing the lowest fees and rates as possible."

However, it's more than awareness that many credit unions must battle. Like USC Credit Union, others are faced with the business-lending cap, not imposed on banks.

"The industry as a whole is challenged by existing legislation that 'caps' member business lending at 12.25% of a credit union's total assets. Many credit unions are either up against or approaching that lending cap; despite their desire to offer commercial loans for their members and thereby stimulate the economy and grow jobs."

"Fortunately, current legislation, Senate Bill 509, is looking to change that - without costing taxpayers a dime. This bill, presently in committee before both the House and Senate, would raise the permissible amount of Member Business Loans from the current cap of 12.25% to 27.5% of a credit union's assets."

Donovan explains that if the bill passes, credit unions will have the ability to lend up to $10 billion in the first year, helping America's small businesses create over 100,000 new jobs. "Obviously, we're very hopeful as an industry that this legislation is passed, but even if it isn't, commercial lending at credit unions is here to stay."

The future certainly does look bright for many credit unions. Donovan says, "At USCCU, we're looking to expand our commercial lending program in the coming year - fortunately, we have the capacity and resources--not to mention demand--to continue growing."