Some people think that higher limits on the amount credit unions can lend to small business will make a difference in easing the so-called entrepreneurial credit crunch. Others are not sure there even is a credit crunch. And to some, this is all about feuding between community bankers and credit unions. Let’s examine what’s happening, and you decide.
Sen. Charles Schumer (D-NY) 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 not much impact on local businesses because demand for loans has dried up.
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.
* * * * *
Editor’s Note: This article was previously published at OPENForum.com under the title: “Small Business Lending Enhancement Act: Do Small Businesses Even Care?” It is republished here with permission.
Credit unions are a big player in small business lending here in Canada. I think they provide a useful alternative to banks for many business owners. Our banking sector is much more consolidated than in the U.S. and the credit unions provide an alternative when the banks, as a group, tighten lending policies. Our credit unions have the sophistication to handle most small business banking needs and their default rates would be similar to that of the banks. More lending competition is good for the small business owner.
Do you know if credit unions and community banks are common outside North America?
Why not look elsewhere altogether? Small business loans are a hassle in the best of circumstance. However, there are other options out there. We were able to get funding with the help of a business angel-cum-entrepreneur; specifically there high-tech division called Esolvenano.