Credit unions, nonprofits that offer basic banking services, want to double the amount they lend to small businesses. And they may get some help from the government.
Sen. Mark Udall, a Colorado Democrat, plans to file legislation next week that would increase to 25% the amount of assets credit unions can lend to small businesses, said his spokeswoman Jennifer Talhelm. Currently, small business loans by credit unions are limited to 12.25% of assets per a 1998 federal law.
"It's one of the few easy ways that we have to support credit unions, small businesses and help create jobs all at once," he said in an e-mailed statement.
A rash of credit union executives descended on Washington for an annual conference this week and met with lawmakers, imploring them to support the measure.
The legislation could add 125,000 new small business jobs by making it easier for entrepreneurs to obtain financing, according to the Credit Union National Association, a credit union trade group. About 21 million U.S. employees work in businesses with fewer than 20 employees, according to the Census Bureau. Credit unions themselves employ about 260,000 people nationwide.
St. Mary's Bank, the country's oldest credit union, is one of almost 300 credit unions near the federal credit union lending cap, with about $85 million in loans outstanding to tiny New Hampshire businesses, including lumberyards, manufacturers and grocery stores. Fifteen of the 185 St. Mary's employees handle the lending.
"We probably have to turn away anywhere from $1 million to $2 million small business loans a month," said St. Mary's CEO Ron Covey. "And we have a lot of the larger financial institutions that are looking for larger transactions and have pretty much pulled out of small business lending."
The state of small business lending has been mixed. In the wake of the crisis, several large banks pledged to free capital up for firms with annual sales under $20 million. JPMorgan Chase, for example, hired at least 325 additional lenders and parceled out more than $10 billion in small business loans last year.
But for many big firms, the volume of new loans did not outpace the volume of loans being paid off or written off.
An October report by the New York Federal Reserve said that three-quarters of small businesses looking for credit last summer were turned down or received only some of the financing that they requested. "Reports from small-business owners of a credit gap have been both vocal and frequent," the study stated.
The government is finalizing a $30 billion plan to encourage small banks to lend to local businesses. Under one version, small banks could borrow government funds at interest rates as low as 1% to lend to small businesses, but credit unions are not eligible for that program, according to the Treasury Department.
Currently, almost one-third of the country's 7,500 or so credit unions offer loans to small businesses, according to the National Credit Union Administration, a federal regulator. But those lenders have been particularly aggressive. They doled out 30% more to small businesses in 2009 than they did in 2007, two years when traditional banks froze financing for all but the most solid enterprises. And in the first nine months of 2010, credit unions were on pace for an additional 40% boost in small business lending, according to the credit union association.
A number of member-owned lenders are looking to get in the game, including Chicago-based Alliant Credit Union, which is in the process of hiring at least two people to start offering small business loans to its 280,000 customers.
Alliant CEO Dave Mooney said member-owned lenders have a better sense of how credit-worthy their customers are. "There's more of an intimate relationship there," he said. "And credit unions are very willing and able to lend at this point."
Previous attempts to expand federal limits fell short as traditional bank lobbyists argued that credit unions don't have enough resources or experience to lend to businesses responsibly.
Udall, the Colorado senator, filed a measure to expand the lending cap to 25% of assets in December 2009, but the proposal did not get traction in Congress. Udall also failed to get similar language added to a broader piece of small business legislation in the fall.
Mountain America Credit Union, which bills itself as the biggest such small-business lender in the nation, is hoping Udall's efforts will pay off this time around. It has $110 million parceled out to small firms, mostly in chunks under $50,000, according to Mountain America COO Nathan Anderson.
"We have a sweet spot -- the type of loans that really help folks," Anderson said. "If the cap is raised, we would ramp up in a heartbeat.
Write to Kyle Stock