Virtually every current or aspiring officeholder on either side of the aisle extols the virtues of American small businesses as the backbone of the U.S. economy. With that in mind, Sen. Mark Udall, a Colorado Democrat, and Rep. Ed Royce, a California Republican, have introduced bipartisan legislation (S. 2231/H.R. 1418) to raise the cap imposed on credit unions' small business lending from 12.25 percent of assets to 27.5 percent.
That one, simple move would free up an estimated $13 billion in additional capital while potentially creating more than 140,000 new jobs nationwide. The Maryland & DC Credit Union Association estimates that member business loans by Maryland credit unions would exceed $201 million in the first year, creating nearly 2,200 new jobs statewide.
Unlike previous initiatives, which made taxpayer money available to banks to lend to small businesses, this legislation would require no taxpayer money. Well-capitalized, well-qualified credit unions with a history of safe business lending would use members' deposits to make loans, a practice credit unions have employed since their inception in the early 1900s.
Clearly, passage of this legislation would have a tremendous impact, particularly at a time when small businesses continue to be hurt by their inability to gain access to the credit they need to grow.
In a recent nationwide survey, 9 out of 10 small businesses indicated that availability of credit was impeding their ability to hire. Nearly two-thirds said it has become significantly harder to get loans today than just a few years ago. Similarly, a National Federation of Independent Business survey found a nearly 10 percent increase in the number of small businesses trying to borrow but no change in the number of small businesses actually obtaining credit.
The proposed legislation also would fill a tremendous void in the market. Credit unions have experienced a 45 percent increase in business lending nationally since the financial crisis began in December 2007. During that same period, banks reduced small business lending by 15 percent due to the tough economy, new government regulations and the decision to limit small business lending. Without an increase in the current lending cap, the growth in small business loans from credit unions eventually will come to a halt.
Unfortunately, some want to paint this legislation as a "credit unions vs. banks" issue. This is simply not the case.
Business lending is consistent with the mission of credit unions. Credit unions were founded to "promote thrift and make loans for provident purposes" through a not-for-profit cooperative structure focused on member-owners, not profit margins. Meeting the credit needs of their members — including business credit — is why credit unions exist.
Credit unions have a strong history of safely making business loans to members, with historical loss rates lower than banks'. During the recent financial crisis, credit unions stood with their business-owning members, expanding portfolios while banks pulled back access to credit.
Beyond that, the new legislation would maintain the current 12.25 percent cap for most credit unions. The National Credit Union Association will ensure that credit unions that should not be engaged in business lending — due to lack of experience and/or capital — do not put their members' capital at risk.
Finally, the new legislation does not threaten the sustainability or profitability of banks. Banks control 95 percent of the country's small business lending market. The legislation provides for a modest increase in credit unions' ability to lend to small businesses. Even if credit unions doubled their portfolios (which could not happen for at least three years under this legislation), banks would still possess 90 percent of the market.
This is neither a Democratic nor a Republican issue. It is a people issue. This legislation would free up capital, allowing small businesses to expand and, in doing so, create jobs. With our economy still not on solid ground, this legislation provides an opportunity that our nation simply cannot afford to ignore.
Rod Staatz is president and CEO of SECU, the largest financial cooperative in Maryland.