Raise the lending cap for credit unions

Editor’s note: Brett Thompson, president and chief executive officer of the Wisconsin Credit Union League in Pewaukee, wrote the following Milwaukee Biz Blog in response to this news story.

There’s one thing we all agree on: the incredible drive, ingenuity and resilience of American small businesses comprise the very backbone of the U.S. economy.

The resolve of millions of small firms during these challenging economic times has sustained American households and remained the force that strengthens our country. That’s why a bipartisan measure to raise the cap on credit unions’ small business lending – from 12.25 percent of assets to 27.5 percent – is gaining steam in the U.S. Senate.

The proposed legislation, S. 2231/H.R. 1418, was introduced by Sen. Mark Udall, a Colorado Democrat, and Rep. Ed Royce, a California Republican. It would free up $13 billion in capital, creating 140,000 new jobs nationwide. In Wisconsin, the legislation would create $408 million of new credit and add 4,437 jobs in the first year alone.

Even better? There’d be no cost to taxpayers, unlike prior initiatives that gave taxpayer funds to banks to stimulate small business lending. 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 they began over 100 years ago.

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 nationwide survey, 90 percent of small businesses said a lack of credit precluded hiring. Nearly two-thirds said it’s significantly harder to get loans today than even a few years ago.

The proposed legislation would also fill a tremendous void in the marketplace. Credit unions have experienced a 45 percent increase in business lending nationally since the financial crisis began in December 2007. During that period, banks reduced small business lending by 15 percent because of the tough economy and the decision to limit small business lending. Credit unions have tried to fill the gap, but the cap has forced them to withhold help they might otherwise offer to sustainable, creditworthy enterprises.
This is not a “credit unions vs. banks” issue. Banks control 95 percent of the country’s small business lending market. Rather, the bill would remove the arbitrary limit that has prevented safe, sound loans from being granted by credit unions with the expertise and capacity to make them. Notably, Wisconsin credit unions have had a lower loss rate than banks on business loans for over a decade.

Business lending is consistent with the mission of credit unions, which were founded to “promote thrift among members and create a source of credit for provident or productive purposes.” Credit unions are organized though a cooperative structure that puts people before profits. Meeting the credit needs of their members—including through business loans—is why credit unions exist.

As Forbes has said, “it’s a no-brainer.”

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