Credit Union Lending Bill Would Help Small Firms

Co-authored by Erica Schoder at R Street Institute and originally featured in The Huffington Post:

A look at the numbers makes it clear that America’s economy relies on small business. After all, they create a majority of new jobs and employ four out of six American workers. And it’s not often political leaders miss an opportunity to tout the importance of this critical constituency.

Like all businesses, small businesses need credit to innovate, expand and prosper. That’s why the two of us — whose organizations often come down on opposite sides when it comes to political issues — both believe Congress must act to free up more small business credit. In particular, we think lawmakers should approve a regulatory relief effort that would allow credit unions to lend more money to small business. Doing so is simply common sense.

First, some background: Small businesses today face a dire credit situation. As a result of the financial crisis, not a single new commercial bank has received a federal charter in the last two years. During the 1990s and early 2000s, more than 100 banks received charters in a typical year. Since small businesses tend to rely heavily on start-up banks, this presents a problem. A survey from Small Business Majority found that more than 60 percent of small business owners find accessing credit to be a major challenge. Furthermore, a Pepperdine University study found less than one out of five business owners seeking a loan of $5 million or less got what they wanted. Even as the economy has recovered, some indexes of small business lending have actually dropped. Congress has made an effort to change this situation, such as creating a “small business lending fund,” but the numbers demonstrate it’s just not enough.

A pragmatic solution to this problem is to change outdated regulations that limit credit unions — democratically governed, nonprofit financial cooperatives — from meeting consumer needs. Right now, federal regulations bar credit unions from lending more than 12.25 percent of their assets to businesses. As a result, businesses that belong to credit unions have $13 billion less in capital available to them. Legislation in Congress would change this and allow credit unions to lend up to 27.5 percent of their assets. This change would have no additional risk for taxpayers and create thousands of new jobs at small businesses.

The proposals to change the regulations have significant bipartisan support. In the House of Representatives, 141 representatives with significant numbers from each party have signed on. In the Senate, 21 members, many more of them Democrats than Republicans, also support the bill. The real opposition to the proposal comes from banks that believe they’ll lose business. While these banks certainly deserve a place at the table, the banks’ own interests should not come ahead of those of small businesses or the economy as a whole.

The bottom line is simple: The slow recovery has not been good for the small business community. Getting more credit to small business owners can get them, and the national economy, on track to a full and sustained recovery. There’s no reason for Congress to delay action. Credit unions must be allowed to make more loans to small businesses.