I don’t think there’s any question that small business credit is a little harder to come by today than it was four or five years ago. Cash for expansion, working capital or purchasing new equipment is critical for Main Street businesses to succeed, but commercial lending of less than $1 million has fallen by more than 14 percent since 2008 according to Deborah Cohen, writing for Reuters. Although this discouraging statistic published by the Federal Deposit Insurance Corp doesn’t sound too good, there is money available for small businesses.
“Meanwhile,” writes Cohen, “credit union business lending jumped 22 percent from 2008 through the end of 2011 to $39.1 billion, according to the National Credit Union Administration, which regulates credit unions.”
Finding a loan for most small business owners today is no longer limited to their local community bank. Borrowers are looking online and exploring other avenues to find convenient and available loans or credit lines. It looks like credit unions want to step up and share a bigger percentage of that pie.
Cohen suggests that “…business loans represent only 4 percent of total credit union assists or roughly $1 trillion through March, and many credit unions would like to do more. But some individual credit unions cannot—they are nearing their legal limit. A 1998 cap restricts credit unions from lending more than 12.25 percent of their assets.”
That’s why they are lobbying Congress to raise the limit, but the bankers aren’t too happy about the thoughts of even more competition from the credit unions. “Credit unions are now focusing on legislation introduced this spring by U.S. Sen. Mark Udall, a Colorado Democrat, that would increase the lid to 27.5 percent of assets and has a better chance of passing,” writes Cohen. “Senate Democratic leader Harry Reid has said the Senate would vote on a bill this session in what is expected to be a very close decision.”
Although the bankers don’t like the idea of credit unions getting into their kitchen, so to speak, it seems like there is a need begging to be filled. “Credit unions tend to make very small business loans,” said Debbie Matz, chairman of the National Credit Union Administration. “Generally banks don’t even make a loan that small,” she said, noting the average credit union business loan is about $230,000. “They’re filling a very important need for small business.”
It’s really easy for this discussion to devolve into a banks vs credit union bash session, which isn’t my intent. I agree with Cohen when she suggests, “Those charged with finding new sources of capital for small businesses say anything that creates more financing options cannot be bad.”
Although this may be a shameless plug, one of the things I really like about Lendio is the ability for small business owners to shop and compare their loan options in once place. Sometimes it will likely be a bank, it could be a credit union or one of a number of other options that fit what the business owner needs and is looking for. I’m with Cohen, anything that makes it easier for Main Street businesses to find capital is a good thing.
I think this legislation is something small business owners around the country should be paying attention to.