April 20, 2010

Would higher limits on the amount credit unions can lend to small business make a difference? Sen. Charles Schumer (D-NY) thinks so.

Schumer is co-sponsoring a bill that would increase the amount of their assets credit unions can lend to small businesses from 12.25 percent to 25 percent, BusinessWeek reports. The proposal has been included in The Small Business Lending Enhancement Act, which is currently before committees in the U.S. House and Senate, and has bipartisan support in both chambers.

The Credit Union National Association believes raising loan limits could create some 100,000 new jobs and $10 billion in new loans. “More lending means more capital for small businesses,” John Magill, senior vice president for legislative affairs at the association, told BusinessWeek, “and that translates into more jobs at a time when job creation is a national priority.”

However, the concept faces stiff opposition from the Independent Community Bankers of America, a trade association for small banks. The association is battling the proposal, contending that it does not fit credit unions’ mission as tax-exempt organizations. Community bankers also say there’s no need to raise limits in the first place, since most credit unions haven’t come close to hitting the limits. Finally, the bankers argue, making smart decisions about business lending is harder than ever in today’s tough regulatory climate, and most credit unions lack the sophistication to do so.

According to the California Credit Union League in Ontario, U.S. banks' business lending dropped by 15 percent over the past year, while credit union lending to businesses rose 11 percent in the same period. The average loan amount from a credit union was $210,000.

But one Southern California credit union president told a Press-Enterprise reporter that, while he supports the measure, he doubted it would have much impact on local businesses because demand for loans has dried up.

Both credit union and bank executives have gone to Washington in recent months to pitch their side of the issue.

While community banks and credit unions may be battling each other on this issue, the real question remains how much impact this will have on small businesses.  Undoubtedly there are small businesses that need credit, but not everyone agrees that lack of credit is a big problem facing small businesses today. 

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Join the conversation ( 5 )

• TJ McCue 2 years 0 months and 26 days ago

  

  Would it be more productive to fund startups with these funds than to make a big deal of loaning them to companies that don't need them? New companies probably need the funding to get out of the gate. I couldn't avoid noticing the irony in the banker's arguing over what makes a smart decision... I don't know that many of them know what that is. I'd rather see the Kauffman Foundation help figure this out and help guide how to use funds.

• Martin Lindeskog 2 years 0 months and 30 days ago

  

  Anita, Thanks for explaining this jungle of bills floating around... When I want to learn get a rational perspective on the banking industry, I seek out what John Allison, former chairman and CEO of BB&T Corp, has said in the news.

• Anita Campbell 2 years 1 months and 9 days ago

  

  Thanks Joel. There is a minority of small businesses suffering from lack of credit -- that is true. Those who want to buy franchises are among them. But the thing is, the majority of small biz were not interested in getting themselves into debt in the midst of a recession. Yet, if you were to listen to the financial news, the talking heads make it sound like small businesses face no problems that a loan wouldn't cure. I'll repeat -- inability to get loans is a problem for some small businesses -- I will grant you that. But the statistics just don't support that it's a big problem for the majority. So I doubt that changing the rules for credit unions will make any meaningful difference to the small biz community.

• PAUL ROSENFELD 2 years 1 months and 10 days ago

  

  Hi Anita. This touches a nerve b/c I agree: The issue in America with most small businesses is less about access to capital and more about the dried up consumer demand. Perhaps there are sufficient, larger small and medium sized businesses who do indeed need capital, I guess I have no doubt this is the case.So if I stick to local main street businesses who depend on consumer demand, I don't see them rushing to the bank for a loan. All this said I generally think it's a good day to free up capital for lending as long as it's not mandated to lend to specific groups of people :-) Cheers, paul www.fanminder.com

• Joel Libava 2 years 1 months and 10 days ago

  

  Anita, The title of this post is a great one. It says it all. I think that lots of small business owners have just kind of given up on getting loans, and are in "hunker down" mode.I wonder what it's going to take to get the banks to free up their assets again?JL