Where Sustainable Loan Growth Comes From

Indirect lending can support production. Building direct demand requires a broader strategy.

Vanessa Henry, VP of Marketing & Strategic Communications, CU Strategic Planning

In Joe Brancucci’s The Lending You Do Not See, he begins with the story of Isaac, who started his day knowing he needed to purchase a car and ended it as a member of a credit union. He hadn’t had an experience of entering a relationship, except possibly with the car dealership, and yet he found himself not only a borrower, but a new credit union member.

Credit unions have been pulling back from indirect lending for several years, dropping from a high of over 22% in 2023 to 19.4% in Q1 2026, according to Callahan & Associates. And with fewer Isaacs on the books, membership growth has also slowed, at 1.8% year-over-year in March 2026. As Callahan’s Chris Howard described it last year, “Data suggest at least a quarter of net new members in recent years are one-hit wonders sourced through indirect channels. They produce income to serve core members better, but they also confirm that all members are not the same.”

However, indirect lending remains a significant portion of credit union lending It remains a useful source of access, volume and member acquisition. It can help a credit union reach borrowers at the point of purchase, compete in markets where financing decisions happen quickly and put available liquidity to work. Some institutions have built well-managed indirect programs that support their broader lending strategies. But the trends have shown that indirect lending isn’t able to do all the work required to build sustainable growth.

The appeal of indirect lending is easy to understand. When internally generated applications are inconsistent, a third-party channel can provide a steadier flow of loans. The challenge arises when a channel that began as one component of a growth strategy gradually becomes the production strategy. Budgets start assuming the volume will continue. Staffing and income projections are built around it. Reducing the flow becomes difficult even when margins tighten or the credit union wants to redirect resources.

Dependence does not always appear as an unusually high concentration. It can begin with the assumption that the channel will continue filling a gap the credit union has not yet learned to fill organically.

In a cooperative model, membership has historically carried intention. Someone chose to enter because they expected the credit union to matter beyond a single transaction. Deposits begin, trust builds through repeated use, and lending grows out of a relationship that already carries participation. Value enters the institution before it leaves. That participation compounds, which is what allows the model to hold together.

Third-party origination interrupts that order. Value leaves first. The loan itself may be entirely sound; what shifts is not the quality of the obligation but the distribution of certainty. The value transferred outward is immediate. What the institution hopes to receive later, meaning deposits, additional use, some form of loyalty, has not been established and based on the data, likely will never be. For Isaac, his membership came about as a small required detail of his car-buying experience. That membership is valid, of course, but it has a different starting point.

The behavioral data point in the same direction. MeridianLink reported in October 2025 that a typical credit union participating in indirect lending only converts 1% of those members to use additional products.

This is where mission-driven institutions should pay closest attention. A credit union that cares about community development can’t succeed in that without knowing its members well enough to underwrite differently, counsel effectively and design products around real needs. Alternative underwriting depends on context the institution has earned access to. Financial counseling depends on a relationship the member trusts enough to use. And

administrative membership supplies none of that.

With a direct loan, the credit union’s marketing, staffing and operational expenses support systems and relationships it controls. Those capabilities can continue producing value through deposits, additional loans and greater member participation.

With an externally sourced loan, compensation or fees associated with gaining access to the transaction reduce the economics at entry. The credit union still provides the capital and assumes the obligation, but part of the potential return has already moved outside the institution.

The loan must then absorb servicing, compliance, collection and capital costs. It may also require ongoing monitoring of dealers, vendors, documentation quality and exception patterns. If the credit union isn’t able to grow the relationship with that borrower, the original loan carries the full responsibility for justifying those costs.

A loan can perform for years without developing into a checking relationship, deposit account, future loan or other meaningful connection to the credit union. This might be acceptable if the loan produces sufficient value on its own. But as we see when indirect lending and membership growth rise and fall together, it shouldn’t be confused with truly engaged member growth.

Isaac’s loan may perform exactly as expected. But if disruption occurs, the credit union that holds his loan must manage it without having been the place where his financial life was first anchored. The original confidence belonged to the transaction, not to the institution. That distinction is hard to see while the loan is current. It becomes crystal clear when the borrower has to decide who to call when something goes wrong.

These aren’t arguments against indirect lending, Brancucci contends; they are reasons to define what the channel is expected to contribute and evaluate whether it is meeting that expectation.

Pulling back from indirect lending can happen relatively quickly; rebuilding direct demand is a slower process.

Organic loan growth depends on several connected factors:

• Whether the credit union understands where unmet demand exists.
• Whether current products and policies fit the needs of its members and market.
• Whether qualified borrowers are being lost through denials, friction or an unclear process.
• Whether existing members know the credit union can help with their next financial need.
• Whether community organizations and other partners are referring prospective borrowers.
• Whether lending, marketing, operations and leadership are aligned around the same opportunities.

A credit union might have considerable lending potential within its existing membership but lack the data needed to identify it. It might be reaching the right market with products that no longer match how people earn, borrow or manage financial disruptions. It might have strong products but limited awareness outside its current member base.

In other cases, the obstacle is broader. Deposit strategy, staffing, underwriting, member experience and execution may all be affecting the credit union’s ability to generate and retain direct relationships.

Community connections are another frequently overlooked source of growth. Nonprofits, workforce organizations, housing groups, public agencies and small-business support organizations encounter financial needs before those needs become loan applications. They can help a credit union understand where existing products fall short, reach prospective borrowers and build referral pipelines grounded in trust.

No single approach will address every situation. The starting point depends on what is limiting growth. The more a credit union can ensure it can generate growth through relationships and capabilities it owns, the stronger it is with or without externally sourced lending.

For some credit unions, the first need is a clearer picture of where loan opportunities exist and what is preventing them from becoming applications or approvals. Others need a more comprehensive look at the organizational issues affecting growth. Still others need stronger connections with the organizations already serving prospective members in their communities.

Do you need help analyzing and finding new organic loan opportunities? Learn more about the ways CU Strategic Planning can help you turn community opportunity into lending growth.