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CUNA MBL cap is No. 1 deterrent to SBA lending
WASHINGTON (6/11/09)—Credit Union National Association (CUNA) witness Roger Heacock told the House Small Business Committee Wednesday that credit unions stand ready to do more to provide credit to small businesses. Heacock is president/CEO of Black Hills FCU, Rapid City, S.D., which
Click to view larger image CUNA witness Roger Heacock outlines credit union challenges to participating in SBA guaranteed loan programs. Number one, he says, is the low MBL cap, which keeps some credit unions from setting up small business lending programs in the first place. Heacock is president/CEO of Black Hills FCU, in South Dakota. To Heacock's right is National Association of Small Business Investment Companies witness Hollis Huels. (CUNA photo)
received a South Dakota district Small Business Administration (SBA) award for writing more SBA loans in the state than any other financial institution during 2008-2009. The loans totaled just over $1.6 million, and averaged $56,703 per loan. “We have a number of members who started small businesses using SBA loan funds, while continuing to work at their primary job as their main source of income. The SBA helped us be there for our members, and this has resulted in additional employment opportunities,” Heacock testified before the committee. However, he added, some credit unions find SBA fees prohibitive and the application process unnecessarily complex, creating barriers to participation. Another barrier, identified by Heacock as the number one obstacle, is the restrictive 12.25%-of-assets cap imposed on credit union member business lending (MBL) just over 10 years ago. While noting the cap does not apply to SBA loans, he pointed out it is a huge deterrent to credit unions' developing MBL programs, without which they cannot pursue SBA programs. Also, without the cap, credit unions could infuse communities with as much as $10 billion of small business credit, CUNA has noted. Heacock acknowledged that there can be additional risk to small-business types of borrowers and noted that “other lenders shy away from helping them because there is not a proven cash flow.” “We are able to do this type of lending because of the guarantee that SBA provides,” he said referring to his credit union’s experience, “The programs allow us to help the borrower who comes in and may not have the equity investment we would generally like to see, but has a good business plan.” “The SBA helps us create an acceptable level of risk and it is a win-win situation for all of us – the credit union, the SBA and the borrower,” he added. In response to a question, Heacock also addressed the negative role some federal credit union examiners play in credit union interest in SBA guaranteed lending programs and business lending in general. He told the committee members, "Examiners' anti-business lending approach in some parts of the country is hurting credit union lending to small businesses." The committee hearing, overall, was intended as an exploratory look at the role of the SBA’s financing programs in providing access to capital for small businesses. Additionally, the committee intended to examine better ways to achieve the SBA mission of providing access to capital for small businesses. Two panels of witnesses were scheduled to testify. Along with Heacock, the first panel featured representatives from the Independent Community Bankers of America, American Bankers Association, National Association of Development Companies, and the National Association of Small Business Investment Companies. The second panel was comprised of representatives from the following organizations: the Biotechnology Industry Organization, the International Franchise Association, Associated Equipment Distributors, and National Marine Manufacturers Association. Use the resource link below to read CUNA's entire statement.
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