Here’s a fact: Banks today have about 95% of the small business lending market. Yet you would think it was 0.95% the way they have been carrying on in opposition to a bipartisan bill that would let credit unions do more small business lending. While U.S. senators are at home for the next two weeks, they will be hearing from credit unions and small businesses — lots of them — to clear away the bankers’ bluster and redirect the focus of this issue to where it belongs: on helping the nation’s small businesses.
Radio ads the American Bankers Association recently aired inside the Beltway have bankers grumbling about credit unions but show no concern about what banks would do for small business. It’s not like they haven’t had a chance to do something.
Credit unions hear all the time from small business owners who have received no help from banks on the credit front, including comments like this one from Steve Primeau, owner of Live Oak Assisted Living in Montgomery, Texas: “We went to at least a dozen banks. … They just said no. Ultimately, I did go to my credit union. They are my heroes. They helped me along in this, and we’re building.”
Mr. Primeau’s example is not an isolated one. It’s borne out by survey research by the Small Business Majority, which in February found 60% of small businesses say it’s still too difficult to get a loan. Similarly a National Federation of Independent Business report in January on small business access to credit found a 9% increase in small businesses trying to borrow in 2011, but no change in the number of small businesses obtaining credit. NFIB concludes that “the more competition that exists, the more likely small-business owner customers will receive sympathetic consideration for their loan requests, favorable rates (and terms and conditons), and better service, other factors equal.”
More competition is sure to ensue if Congress passes S. 2231, the Credit Union Small Business Jobs Act. The law now caps the amount of small business loans a credit union can make at only 12.25% of its assets. The artificially low cap has become a problem for some 500 credit unions that either are now or before long will bump up against it, to say nothing of all the credit unions deterred by the low cap from even entering this market.
This loan cap was set by Congress in 1998 and has been stuck there since (before ’98 there was no cap). A Senate vote on the bill, which would raise the 12.25% cap to 27.5% for qualifying credit unions, is expected when Congress returns from its spring recess. Its passage would free up credit unions to make $13 billion in new loans to small businesses in just the first year, giving these businesses the wherewithal to create an estimated 140,000 new jobs, all by simply raising a cap — no expense to the U.S. taxpayer involved.
Going from 12.25% to 27.5% essentially doubles the current cap. Yet if that leads to doubling credit unions’ lending, it would still leave banks with 90% of the market, instead of the current 95%. One has to ask, why all the outcry? And it comes from the same industry that benefited last year from $30 billion in government loans for more small business loans (some of which community banks simply used to pay off their TARP obligations). Credit unions do have an exemption from federal income taxes, but the exemption stems from their structure as not-for-profit cooperatives. Banker complaints on this matter strike an incredibly false note given the enormity of the taxpayer bailouts that went to their industry.
The reality is that credit unions have money to lend, their track record is considerably better than the banks (since 1997, credit unions’ small business charge-off rates have been one-fourth of banks’ rates), and freeing up credit unions to do more will enhance competition and marketplace choice.
These are points thousands of America’s credit unions will be making when they talk with their senators at home this week and next. Let’s hope senators listen, cast the bankers’ objections aside, and recognize it shouldn’t be about banks versus credit unions; it’s about helping small business.
Bill Cheney is the president and CEO of the Credit Union National Association.