Small Businesses and Credit Unions: For the Good of America

Since 1963, U.S. presidents have marked the important role of the country's small businesses by proclaiming a week in May as a time to honor their contributions.

And just last week the U.S. House of Representatives passed a bipartisan resolution recognizing National Small Business Week to celebrate the pivotal role small businesses play in our nation. Their contributions are critically important.

Small Business Week is an ideal time to highlight all that the country's credit unions do to support small businesses in their communities. Not just for a week--but every day, every week, and for more than 100 years. It's a perfect time to recognize that credit unions stand ready to do more if the country's policymakers will tear down an unnecessary and artificial lending barrier, which didn't even exist before 1998.

There are more than 29 million small businesses in the United States and they employ more than 50% of the country's private sector workforce. Small businesses also create around 70% of new jobs--having an incredibly important impact as the country and its citizens continue on the road to full recovery after the recent economic downturn.

These locally based entrepreneurs do even more. They contribute to their communities by bringing growth and innovation. And when consumers frequent their local small businesses, they essentially give money back to their local communities.

Although credit unions are limited by an arbitrary business lending cap, they are active in supporting their communities by making small business loans.

In fact, credit unions have been an oasis for small business owners both during and after the financial crisis. At the same time, banks--who are not saddled with the same restraints as credit unions--withdrew their offerings and exited the market.

From June 2007, the onset of the financial crisis, to December 2015, small business loans outstanding at credit unions more than doubled--growing by slightly more than 130% over the period. Those loans at banks actually shrank by 10% during that time.

Listen to what the U.S. Small Business Administration (SBA) has to say about that. In a recent report, the agency noted that "credit unions are increasingly important sources of small business loans as a longer-run development and in response to fluctuations in small business loans at banks."

Access to capital is vital. It's that simple. You can't start a business, purchase inventory, expand a business or strengthen a business without access to capital.

If the U.S. Congress will pass bipartisan legislation to increase the credit union business lending cap to 27.5% of a well-capitalized credit union's assets--up from the current 12.25% cap--it would, by our estimates, create 140,000 jobs and inject $13 billion of new funds into the economy, at no cost to taxpayers and in just the first year after enactment.

There are great bills, with very strong bipartisan support, just awaiting positive action in both the House and Senate: H.R. 1188, introduced by Reps. Ed Royce (R-Calif.) and Gregory Meeks (D-N.Y.), and S. 2028, introduced by Sens. Rand Paul (R-Ky.) and Sheldon Whitehouse and Jack Reed, both Democrats representing Rhode Island.

CUNA and credit unions thank these forward-looking legislators for their leadership roles in this arena, and we urge Congress to act soon to open up more credit to credit-hungry small businesses.

There are also actions policymakers could easily take on the regulatory side that would also help small businesses access more credit.

We have worked closely with the SBA to encourage more credit unions to use SBA services when serving member businesses. Through programs such as SBA's 7(a) loan program, credit unions can offer loans to businesses with up to 90% of the loan guaranteed by the SBA. The good news there is that the SBA-guaranteed percentage of the loans doesn't count toward credit unions' business lending caps.

However, CUNA's ongoing review of SBA policies show some have the unintended consequence of hindering credit union involvement in the agency's flagship 7(a) and 504 guaranteed lending programs.

Credit unions sometimes find the cost and complexity of the application process to these good programs are a barrier to becoming involved with them.

These regulatory fixes can be done--as witnessed earlier this year when the National Credit Union Administration, strongly supported by CUNA, did a major overhaul and modernized its rules by removing nearly all requirements on business lending that are not included in the Federal Credit Union Act.

By restoring credit union small business lending authority and empowering credit unions with greater flexibility and autonomy in offering business loans, the NCUA handed a major victory to America's small businesses and job creators.

Now that's really a way to show our country's support of its critical small businesses.

We urge Congress to take strong measures now on the legislative side and show the country's true support of small businesses by enabling credit unions to do more lending. It is good for small businesses, it is good for consumers, and it is good for the country.