By Gina Ragusa Published April 4, 2011 Credit Unions Online
Senator Mark Udall believes that a fundamental key to economic recovery is small business expansion and growth. However, U.S. small businesses continue to struggle due to a soft economy and tight lending standards imposed by many multi-national banks.
One safe harbor for many small businesses has been credit union lending. Credit unions have historically been a friend to the small business owner, offering SBA loans and other products catered to small local companies. Although many businesses have benefitted from a credit union SBA loan, others are still in need but unable to obtain a loan due to a government imposed SBA lending cap.
Several years ago a 12.25% credit union lending cap was placed on credit unions due to their tax exemption status and to ensure that credit unions continued to adhere to prudent lending practices. However, with the economy in the red zone, extending the credit union SBA lending cap may be the key factor to finally kick-start the economy and fuel the small business train.
In a recent press release, Udall explains, “The solution is elegantly simple: if there are credit unions with capital to lend, and small businesses in their communities that need loans to spur job growth - why not allow our economy to grow? My bill would free up capital - without costing taxpayers a dime - so that credit unions can loan to small businesses that need to make payroll, buy inventory or expand their businesses. It is a smart step toward shaping a business environment where entrepreneurship is nurtured, not choked.”
Senator Udall and 15 bipartisan cosponsors are urging the House and Senate to raise the credit union SBA loan cap from 12.25% to 27.5%. Udall says that large banks are fighting the increase (although bankers have rushed to refute this comment) because they want to monopolize the industry. Udall says that the bill to raise the cap is a “common-sense and bipartisan bill” and has the support of many in the business community.
Economic Impact of Raising the Credit Union SBA Lending
The economic implications of increasing the credit union SBA lending cap are tremendous. Data from the Office of Advocacy demonstrates how small businesses are the backbone of American society. Small businesses:
Represent 99.7% of all U.S. employers who pay 44% of the U.S. private payroll.
Created 65% of net new jobs since the mid-1990’s
Are the employers of 50% of all private sector jobs
Employ 43% of high tech workers such as scientists, engineers or computer programmers
Generate more than 50% of the non-farm private gross domestic product
With small businesses being stymied by the cap growth will continue to be difficult. In his March 17, 2011 blog Udall explains how not only small businesses, but the country would benefit from raising the credit union SBA cap:
Over 100,000 new jobs would be created in the first year
Small businesses would have access to capital as a competitive rate which would enable them to grow
No cost to the government or taxpayer
Enhance free market competition, which will keep banking services affordable
Over $10 billion in additional capital will be available to small businesses by year’s end
Credit Union CEO Urges Members to Take Action
St. Mary’s Bank, the country’s oldest credit union, has been a longtime SBA lender. During the turn of the century and throughout the dark days of the Great Depression, the credit union has been granting SBA loans to local lumberyards and other neighborhood stores within its New Hampshire landscape.
From the beginning President/CEO Ron Covey has been a strong advocate of having the SBA loan cap raised. He says that his lenders often have to turn down SBA business because the credit union easily hits its cap. “St. Mary’s Bank has a solid reputation as a local SBA lender. We’ve been doing business lending since 1909, so this is nothing new for us. Our market is still very active so we haven’t done any business development or advertising. Local companies mainly hear about our SBA program through word mouth.”
Covey explains that if the cap was raised, St. Mary’s would easily turn an extra $1 to $2 million SBA loans per month. “[The increase] translates into more small companies being able to buy new equipment, expand and hire new people.” Covey and many other participating credit union SBA lenders want to see S. 509: The Small Business Lending Enhancement Act of 2011 pass. He believes that this legislation was on the table last year but fell to the wayside when other, more pressing matters were at hand. However, Covey is optimistic the bill will pass this time. He says that the Senate only started looking at the bill a few weeks ago so it’s possible credit unions will have answers by the May/June timeframe.
“This time the bill has a lot of support and we are optimistic the cap will be raised. Over 30 associations and agencies are supporting it , including the National SBA lending group. With jobs continuing to be the number one focus, we believe the bill will receive attention.” Covey has also involved his membership in the cause. “Last year we created a special letter that our members could sign and either give to us or mail directly to their Senator, urging the government to lift the cap.”
“We received 4,000 letters that we hand delivered to our Senator.” Covey says that informing the membership and taking active steps toward a cause that impacts everyone mirrors the true credit union spirit.