September 23, 2014

Small Business Lending Enhancement Act: Capital Into the Hands of Entrepreneurs

This week, Senator Mark Udall (D-CO) vowed to introduce his bipartisan Small Business Lending Enhancement Act as an amendment to the Jump-Start Our Business Start-Ups (JOBS) Act. The legislation would raise the business lending cap credit unions currently face.

handing money

The most attractive thing about this proposal is that it would help to create jobs without spending any taxpayer money.

“There continues to be a phenomenon in this country where small businesses are starving for credit, yet the federal government is still standing in the way,” Senator Udall said. “I’m talking about the smallest of small local businesses. These are the men and women who need $50,000, $100,000, or maybe even $200,000 to move from their garage to a retail store front, to renovate their sales floor or to upgrade their equipment and expand.”

Credit unions are filling the void when the borrowers are deemed too small to be worth the banks’ time or just don’t fit the lending guidelines of the banks’ corporate headquarters.

“Small-business owners know credit unions in their community that have money to lend, and truly want to help. They probably see each other at little league games, church or play cards together,” Senator Udall said.

The Jump-Start Our Business Start-Ups Act, or JOBS Act, that the House passed last week seeks to increase the availability of credit to start-up companies by expediting and easing the process of making an initial public offering. The problem is that the JOBS Act is aimed at companies with revenue under one billion dollars. There is a big difference between a multi-million dollar company and a local business that needs $50,000 in working capital.

Federal law limits the amount of small business loans a credit union can extend to 12% of their assets. Nearly 350 credit unions are facing their cap, and 500 of them have had to slow or stop their small business loan-making altogether. Senator Udall seeks to change this and hopes to raise the credit union business lending cap from 12.25 percent to 25 percent of total assets

One thing is for certain, over the past year credit unions have been increasingly active in funding entrepreneurs pursuing their dreams of business ownership. My company’s monthly Biz2Credit Small Business Lending Index has reported a steady rise in small business loan approval rates since the beginning of 2011 and into this year.

Approval rates of small business financing requests in February 2012 by credit unions were up 0.2% to 57.8%. A year ago, less than half of small business loans (49.1%) were granted.

A few days ago, I addressed the National Association of Federal Credit Union’s “Strategic Growth Conference” in Scottsdale, Arizona, and encouraged attendees to continue their activity in the small business lending space. Innovation and entrepreneurship have always helped to lead the country out of recessionary periods. I believe that increased entrepreneurship is what has helped turn around “The Great Recession.”

Raising the credit union member business lending cap would help take small business lending by credit unions to a higher level and aid our nation’s economic recovery. The legislation that Senator Udall proposes is an effort that both parties should support.

Money Photo via Shutterstock

4 Comments ▼

Rohit Arora


Rohit Arora Rohit Arora, CEO and Co-founder of Biz2Credit, is one of the country's leading experts in small business finance. Since its founding in 2007, Biz2Credit has arranged $800M in small business loans and has helped thousands of entrepreneurs. Rohit was named Crain's NY Business "Entrepreneur of the Year 2011."

4 Reactions

  1. Small businesses are serious need of capital, and banks aren’t being very helpful. This is not only strapping the current business owners, but potential buyers, too. I just read a piece by business advisor Matt Coletta on how business owners selling businesses have to focus more on helping potential buyers get financing. Let’s hope, for the economy’s sake this goes through.

  2. If we really want to raise the revenue for the nation (which could then be used to help small businesses through government backed loans to reduce risk) then why don’t we start making credit unions pay taxes.

    Yes, you read that right.

    CREDIT UNIONS DON’T PAY TAXES!

    This country misses out on at least $30 billion per year due to CREDIT UNIONS NOT PAYING TAXES.

    I pay my taxes. Why don’t we make credit unions do the same?

  3. This is an excellent infographic illustrating the Small Business Lending Enhancement Act of 2012–and what will change if the bill passes: http://www.mygenfcu.org/small-business-lending-enhancement-act-of-2012

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