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Recent Changes

In the last few years a new player has entered the commercial lending arena: credit unions.  As these entities have gained strength with the relaxing of banking laws, allowing them greater entry into financial markets, credit unions have aggressively gone after previously untouchable markets, offering their services as lenders as well.  Again, similar to other players, credit unions can lend with very little regulatory restriction.  However, since they are much more similar to a bank, they can market the appearance of a regulated entity to their advantage when recruiting prospects. And, due to being a membership cooperative in nature, credit unions can also be more competitive with lending rates and contract terms, unlike banks which are more restricted.

There are some limitations, however, to the extent that credit unions can operate.  First, they’re not allowed to exceed 80% of a real property value involved in the project financing. Credit unions are primarily a lending agency created for a specific group of members, i.e. school employees, government workers, a large company’s employees, a fraternal association.  As such, their first role is to protect their members’ assets entrusted to the credit union.  Ergo, restrictions hold them back from lending too much on a particularly risky project in the commercial lending category.

 


Commercial paper financing

Conclusion

Commercial lending is a modern-day, critical bread and butter component of large scale expansion and construction in business.  While the industry has its risks and gambles, it provides the financing lifeblood that allows business projects to reach fruition.  Much like Columbus’ sponsorship by Spain’s Queen Isabella, ventures live another day with the support of commercial lenders, and fall flat when that same support is taken away.





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