The Washington Post had a lengthy piece on credit unions and small business lending yesterday, focusing on the effort to raise the business lending cap from 12.25 percent to 27.5 percent of assets of credit unions.
The article gave examples of Washington area businesses that were unable to get loans from banks, despite having experience in their industries and previous success. As a Community Development Financial Institution, The Support Center provide small business loans to entrepreneurs in underserved communities. In addition, we also work with Community Development Credit Unions across the state that do small business lending. This is a story we hear very often. Several of our borrowers couldn’t get a loan, even though they probably would have been able to a few years ago.
Although there has been opposition from banking groups, demand for loans has gone up among credit unions:
“Lending to mom-and-pop shops climbed 5.8 percent over the prior year to $37.8 billion in the first quarter, according to the National Credit Union Administration, a regulatory agency. During the same period, the Federal Deposit Insurance Corp. recorded a 3.7 percent decline to $584 billion in small business lending at banks.”
Some opponents of lifting the cap say that doing so would be “inconsequential” because only a few credit unions are close to their cap anyway. The senior vice president of grassroots and political operations the American Bankers Association, James Ballentine, even said, “You can’t fight for something that doesn’t apply to the masses. If it only helps a handful, then Congress certainly should not be going down this road.”
However, this “inconsequential” amount of lending would would help scores of small businesses access capital and create jobs. The National Credit Union Association estimates $5 billion in new capital and 120,000 jobs created in the first year alone. Furthermore, the loans that credit unions would make are the loans that banks are currently not making– meaning that increasing the lending cap would not create competition, rather it would enable credit unions to reach borrowers in a market that banks are not reaching.
(One side note: Isn’t what Ballentine described exactly what the banks have been fighting for all along? Deregulation and legislation that would benefit a handful of very big banks, at the expense of the masses?)
Everyone can agree that access to capital is a problem for small businesses. We can also agree that we need more jobs. It’s unclear how this is a “special interest issue” that is “inconsequential”. This is an issue that affects all of us, and increasing the capacity of credit unions to reach more entrepreneurs is one way to provide benefits and economic growth for communities across the country.