Credit Unions making more loans available for small businesses

Author:     Thursday, September 11, 2014 12:00 AM

In a trend that could mean good news for small business owners, a growing number of credit unions have begun lending money to members for business investment purposes.

According to the Credit Union National Association (CUNA), a trade body representing the nation’s 7,000 CUs, credit union lending for business purposes increased 9.2 percent in the first quarter of last year, the latest date for which data is currently available. Credit unions lent an average of about $212,000 to business-owner members last year, according to CUNA. The only reason that CUs did not lend even more money for business investment purposes in 2013 was because of regulatory limitations on the industry, CUNA has noted.

The Wisconsin Credit Union League, a trade association representing CUs in the state, recently reported the same trend as well. According to the organization, business lending by credit unions in Wisconsin has soared by 73 percent since 2007. As of December 2013, credit unions in the state had lent more than $2.7 billion to businesses compared to a total of less than $1.5 billion in December 2007. The average business loan extended by credit unions in the state was around $178,000, the League noted.

The trend is a positive one for small business owners. The recent recession and ensuing credit crunch have made it extremely difficult for small businesses to get loans from mainstream banks. Though major commercial banks have reported a steady improvement in earnings over the past year and the number of business loans extended by banks has jumped up in recent months, small businesses have been largely left out of the picture.

Statistics from the Federal Deposit Insurance Corporation (FDIC) reveal a substantial 19 percent decrease in loans to small businesses by commercial banks between 2007 and 2013. While loans to medium and large companies rose 12 percent to $1.9 trillion during the same period, bank loans to small businesses went down from $686 billion to $588 billion.

The growing willingness of credit unions to help out business owner members with loans is a positive development in this climate. It means that business owners could soon have more options for securing low-cost loans for investment and development purposes. Credit unions already have a solid track record with small business loans involving relatively low loan amounts. Many have expressed their willingness to support small businesses with more low interest capital.

However, for that to really start happening in a major way, Congress will first need to remove a regulatory barrier that currently caps the total amount of money that a credit union can extend to business members. Under the law, CUs cannot loan more than 12.25 percent of their total assets to small businesses. Organizations such as CUNA are currently actively lobbying Congress for a change in the law. If that happens, small businesses could soon find many more options for securing convenient, low-cost business loans.

Source: BFI