The economic slowdown is dragging on. Last month, the U.S. government lowered its estimated rate of growth in the second quarter to an anemic 1.6 percent. The unemployment rate won’t budge from its perch above 9 percent and may climb even higher. Credit, the lifeblood of small business, remains stubbornly tight. The country needs solutions to turn around its increasingly perilous condition. At the same time, the public’s appetite for new government programs, especially the costly variety, is waning in the face of towering federal deficits.
What to do? There will be no single cure-all. The reality is that Congress and the administration must piece together many solutions whose combined effect will help reinvigorate the economy. America’s credit unions, the industry I represent, have rallied behind a proposal in the Senate that would allow credit unions to make more small-business loans to their 92 million members by raising an arbitrary loan cap put in place 12 years ago.
If this cap were raised, we estimate credit unions could generate $10 billion in new loans to small businesses in just the first year, generating economic activity and growth that would create more than 100,000 new jobs. No new government program of any kind would be needed and, best of all, it would not cost the U.S. taxpayer a nickel. While this alone would not solve the nation’s unemployment and growth problems, it certainly would help, and it would be an easy, painless fix.
Yet the Senate thus far has been reluctant to move this proposal forward. One well-heeled interest group is standing in the way: a banking industry that balks at increased competition in small-business lending. One wonders why. Banks have 95 percent of the small-business loan market. If the proposal were enacted, they still would have about 90 percent. These are the same bankers who have sharply curtailed their own lending to small businesses since the economy collapsed. They aren’t making loans, but they do not want others to make loans. Where is the logic or fairness in that position?
The administration even has proposed giving the community banks $30 billion as an inducement to make more small-business loans. A $30 billion small-business loan fund is the centerpiece of the Small Business Lending Act that the Senate is planning to reconsider this fall. Community bankers are all for it - but not, they say, if the Senate adds an amendment raising the cap on credit unions’ small-business lending authority. That is simply outrageous - and a slap in the face to the many small-business owners in this country who need affordable and accessible sources of credit for start-ups, expansion and growth.
Senate passage of a proposal to open up a lending channel and create new jobs at no taxpayer expense should be a no-brainer. In fact “no-brainer” was the very phrase used by the proposal’s chief sponsor, Sen. Mark Udall, Colorado Democrat, when he took the Senate floor and urged his colleagues to pass his proposal. The Udall amendment, which has bipartisan support, would take the current statutory cap that limits credit unions’ small-business loans to 12.25 percent of their assets and raise it to 27.5 percent of assets. It also would require closer regulatory oversight for credit unions that move toward this higher level. The federal regulator of credit unions, the National Credit Union Administration, supports the measure, as does the U.S. Treasury.
The current limit was put in place in 1998, imposed upon credit unions by the banking industry during a battle for another piece of legislation that preserved the ability of consumers to join credit unions. Credit unions won that legislative fight but, as a price, incurred the loan restrictions. Before 1998, no such cap on credit-union small-business lending existed, and, indeed, credit unions have a long and established track record of responsible lending in this area. Historically, credit unions’ charge-off rate for small-business loans has been just one-fifth the rate of banks.
Of particular significance in this economy, credit unions have continued to lend. During the 12-month period that ended in March, credit-union small-business lending rose 9 percent. For banks over that same period, lending declined 9 percent. Consider Troy Elevator, based in Bloomfield, Iowa, which in January 2009 sought to restructure its long- and short-term debt in an effort to recover from tornado damage. Troy’s bank wouldn’t do business with it. “We were completely shocked and frustrated,” company President Robert Newton recounted. “We had never missed a payment or been late in our 18-month relationship with the bank.” For the past 1 1/2 years, he has been working with Community 1st Credit Union in Ottumwa, and last month, he received approval for a guaranteed loan from the Department of Agriculture through Community 1st.With the loan, Troy Elevator successfully reorganized its operations, kept its grain elevators open and preserved 40 jobs that otherwise would have been lost.
Credit unions help small businesses like this every day and would like to do more for members turned away by banks. Unless Congress grants its permission, however, credit-union business lending will have to slow down rather than ramp up. More credit unions will start bumping against the loan ceiling. About 350 already are getting close; others are being deterred from starting up or accelerating a small-business lending program. All this does nothing to help struggling small firms.
The Senate should not let recalcitrant bankers and election-year politics obstruct a no-cost measure that would help small businesses and bolster economic growth, especially now, when the country needs to do more of both. The credit-union small-business-lending amendment deserves to be passed this year. That is a no-brainer. And, given the precarious state of the economy, anything less would be not just a missed opportunity, but a real travesty.
Bill Cheney is president and CEO of the Credit Union National Association.