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  • Lifting The Business Lending Cap On Credit Unions Helps Small Businesses

    Op-Ed: Barbara Kamm
    President and CEO of Technology Credit Union
     

    Small businesses and startups need access to capital. Without it, they can’t make investments in infrastructure, equipment and supplies, or hire the personnel they need to grow their businesses.

    Unfortunately, today’s small business owners and entrepreneurs are facing an unprecedented credit squeeze. In the aftermath of the sub-prime mortgage meltdown and massive consolidation in commercial banking, business loan growth for banks decreased by 15 percent nationwide between September 2008 and September 2009 (Source: FDIC, NCUA, CUNA E&S). The financial support that is needed to sustain and grow small businesses has crumbled. In fact, the National Federation of Independent Businesses reports that only 40 percent of small business owners who attempted to borrow for their business in 2009 had all of their credit needs met — compared with 90 percent in the mid–2000s.

    Many small business owners are telling policy makers they are being turned away by banks. This has provided the impetus for a long fight among Democrats and Republicans over a small–business jobs bill that is intended to expand government–lending programs and grant an array of tax breaks to small businesses. At the heart of that fight is an amendment that would create a $30 billion government–subsidized lending fund to encourage small banks to make loans to small businesses. This, of course, will come out of taxpayers’ pockets.

    Credit unions could help ease this crisis at no cost to taxpayers if Congress were to raise the credit union Member Business Lending (MBL) cap, which is currently set at 12.5 percent of a credit union’s total assets. The Credit Union National Association (CUNA) estimates that raising the cap to 25 percent could extend up to $10 billion in additional business loans to small businesses, helping to create as many as 108,000 jobs. Here in California, raising the cap would infuse an estimated $1.9 billion in capital into small businesses and startups — potentially producing 20,000 new jobs.

    Credit unions have a long history of business lending that extends back to the early 1900s. Throughout most of this period, there was no limit on the volume of member business loans credit unions could originate or hold. The limits, in fact, came into being arbitrarily with the passage of the Credit Union Membership Access Act of 1998 (CUMAA) — with no clear economic rationale.

    Today, more than any other time in recent history, businesses need help gaining access to capital. Credit unions offer an alternative source of financing. During the same 12–month period that business loan growth among banks decreased by 15 percent, credit union business lending grew 11 percent, but that growth has started to slow as more and more credit unions approach their caps.

    Raising the cap poses no harm to community, regional or national banks, considering that credit unions hold just 4.5 percent of all small business loans at depository institutions. Even if credit unions doubled their share of business loans, banks would still hold 91 percent of the market.

    The simple truth is: small businesses need access to financing so they can survive, prosper and create more jobs but banks are not currently lending to businesses at a rate that satisfies the needs of the market. Credit unions have untapped, critical resources they could provide at no cost to taxpayers. Therefore, if you support small business, contact your Congressperson and Senator today and ask them to raise the business-lending cap. It’s a win-win all around.