Credit Union Business Lending Update
If capital is the fuel that drives business development, then it should stand to reason that the more business lenders in the market, the better. According to the United States Small Business Administration, small businesses accounted for 65% (or 9.8 million) of the new jobs created between 1993 and 2009.
However, because credit unions are limited in their ability to extend business loans to a relatively small percentage of their total assets, credit unions occupy a smaller share of the business lending market. Absent an exception from the National Credit Union Administration (NCUA), credit unions are not permitted by law to have outstanding member business loans exceed 12.25% of their assets.
The Small Business Lending Enhancement Act (S. 2231) seeks to increase this limit to 27.5% of assets.[1] The bill includes controls, such as a requirement that, to exceed the 12.25% limit, credit unions would need to be well-capitalized and demonstrate five years of sound underwriting and servicing of business loans. In addition, the bill would maintain close NCUA control to monitor expansion of the member’s business lending portfolio to the 27.5% proposed in the legislation.
Banks, in general, have opposed increasing credit union business loans at higher percentages of their asset base, claiming that because credit unions enjoy nonprofit status that shields them from state and federal taxes, they would have an unfair business advantage.
In addition, there have been reports that smaller credit unions also oppose the proposed legislation because they believe that passage would expose them to increased liability if they have to share responsibility for failure of business loans made by larger credit unions chasing higher revenues at the expense of sound underwriting and risk management practices.
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