Credit union commercial real estate loans

A credit union is worth a call whenever a community bank is. On a small apartment, mixed-use or retail loan it often matches the bank on rate, lends on a longer amortization, and asks for a lighter prepayment clause. It has room to do that because member business lending is a growth line for many credit unions: 1,596 credit unions hold real-estate-secured commercial loans¹.

The catch is size. A credit union’s lending capacity is a function of its net worth, and two federal limits decide how big your loan can get.

The two limits that decide your loan size

Loans to one borrower. Commercial loans to one borrower are capped at the greater of 15% of net worth or $100,000 (plus 10% if fully secured by marketable collateral)². Every commercial loan you and your affiliates already have at the credit union counts against it.

The aggregate member business loan cap. Net member business loans capped at the lesser of 1.75 times actual net worth or 1.75 times the minimum net worth required by the Federal Credit Union Act³. Some loans do not count: Commercial loans fully secured by a 1-4 family dwelling do not count toward the credit union MBL cap³, and Purchased nonmember loans and participations do not count toward the MBL cap³. Some credit unions are exempt from the cap altogether: Low-income designated, CDFI, business-chartered and pre-1998 business-lending credit unions are exempt from the MBL cap³.

Worked example (illustration). A credit union with $30 million of net worth can lend one borrower the greater of 15% of that ($4.5 million) or the dollar floor. If your affiliates already owe it $2.0 million, the most it can add on its own books is about $2.5 million. A larger loan is still possible if the credit union sells a participation to another credit union, which adds a second credit review and usually a few weeks.

Ask early: “What is your loans to one borrower limit, and how much of it would my existing loans use?” A loan officer who knows the answer is a good sign. One who does not may find out at committee.

How a credit union sizes the loan

The math is the same as at a bank: the lower of the loan-to-value the board policy allows and the loan the net operating income supports at the policy’s minimum coverage. The difference is amortization. Credit unions competing for the relationship will often stretch it, and on a coverage-bound loan that moves the loan amount more than a rate cut does.

Worked example (illustration). A mixed-use building worth $2,000,000 with $150,000 of NOI. Policy of 75% LTV and 1.25x coverage, rate of 7.00%.

Amortization	Annual cost per $1 of loan	Loan coverage supports	LTV cap	Loan	Balance after 10 years
20 years	$0.0930	$1,289,800	$1,500,000	$1,289,800	about $861,000
25 years	$0.0848	$1,414,900	$1,500,000	$1,414,900	about $1,113,000

The longer schedule gets about $125,000 more loan at the same rate and coverage, in exchange for a larger balance to refinance later. Test the trade in the commercial mortgage calculator or the interest-only vs amortizing calculator.

Credit union vs bank, on the points that differ

Point	Credit union	Community bank
Who can borrow	Members only, inside the field of membership	Anyone the bank wants to lend to
LTV rule	Part 723 sets no fixed LTV cap; each credit union's board policy must set LTV limits by collateral type2	Bank policy under the federal ceiling of 85% maximum LTV for improved (completed, income-producing) property4
Personal guarantee	Not required by rule; mitigants must be documented if waived	Usually required
Size limit	Loans to one borrower tied to net worth, plus the business loan cap	Legal lending limit tied to capital, plus CRE concentration screens
Small-loan carve-out	Business loans to one borrower under $50,000 in aggregate are not 'commercial loans' under Part 7235	None comparable
Prepayment	Often open or a short step-down	Step-down or swap breakage

The full head-to-head, with a verdict, is on bank vs credit union.

What the credit union checks

• Membership and field of membership. Open the account before you apply. A community-chartered credit union usually requires the property or the borrower to be in its counties.
• Policy staffing. Larger credit unions must run commercial lending with qualified staff and a board-adopted policy. Credit unions under $250 million in assets with small commercial books are exempt from the Part 723 board, staffing and policy sections⁶, so very small credit unions may lend with lighter process, and often less experience.
• Global cash flow and liquidity. The same review a bank does: other real estate owned, personal income, post-closing cash.
• Valuation. A full appraisal on most commercial loans, plus an environmental screen.
• Construction collateral, if any. For credit union construction loans, collateral value is the lesser of cost to complete or prospective market value⁷.

Common deal killers

• The loan exceeds the one-borrower limit and the credit union has no participation partner ready.
• Property outside the field of membership. Common with community-chartered credit unions when you buy in the next county.
• An unfamiliar property type. Many credit unions are comfortable with apartments, mixed use and small retail, and decline hotels, special-purpose buildings or anything with heavy construction.
• A board policy written for owner-occupied loans. Ask whether the credit union lends on investor property before you send a package.

When to look past a credit union

If the building is a stabilized 5+ unit apartment and you want a long fixed rate without a guarantee, price Fannie Mae small loans and Freddie Mac small balance loans. If you are qualifying on the property’s rent alone, compare DSCR commercial loans. If your business occupies the building, the owner-occupied and SBA page is the better guide.