Credit Unions as Capital Sources

By Venture Mortgage Corporation

Are you aware of the competitive commercial mortgages available from credit unions? Most investors don't realize that credit unions are carving out a competitive piece of the commercial mortgage lending world.

Historically, the three avenues traveled to find a commercial real estate mortgage were banks, life insurance companies, and the CMBS market. Credit unions were seen as small time lenders, specializing in car loans, residential mortgages, personal loans, and the like. This has changed!

What is a credit union? A credit union is a not-for-profit organization owned by it's customers (also called members). These institutions exist to serve their members rather than maximize corporate profits. Members typically drive deposit and loan activity and, in theory, return all profits to its members in the form of dividends.

Membership in a credit union used to be exclusive to a group- i.e., a teacher's group, airline mechanic's group, 3M employees, etc. Smaller credit unions have been swallowed up by bigger credit unions, creating a larger member base, in turn creating a larger pool of deposits that need to be put to use in the form of loans. Because of this larger pool, credit unions have started venturing into the commercial mortgage industry because of the relative safety of this loan type and the increased loan sizes.

Why use a credit union? For one, they tend to be the most aggressive entity in terms of interest rate. Because they operate as a not-for-profit, the yield they are looking for does not need to be as large. Credit unions are allowed by its regulating body to finance loans up to 80% loan-to-value, versus a typical bank loan with a maximum 75% loan-to-value. The final point that can tip the scales towards credit unions has to do with prepayment penalties. Credit unions often do not incorporate a prepayment penalty, which is an extremely important consideration for some borrowers.

There are some downfalls to this capital source that need to be considered: credit unions do not generally have the high-dollar lending ability that some commercial real estate loans require. Further, because most of their lenders are relatively new to the commercial mortgage arena, they tend to be unsophisticated regarding this sphere. Having an experienced broker in your corner assuredly helps in this regard.

Venture Mortgage has a relationship with over 20 local and national credit unions who actively call on us to help them to find loans to serve their members.