WASHINGTON (10/27/11)—There still is a "healthy demand" for small business loans despite current economic conditions, and credit unions could provide more of those loans if the 12.25% of assets member business lending (MBL) cap was increased, Credit Union National Association (CUNA) President/CEO Bill Cheney said in a Wednesday letter to the chairman of the House Financial Services subcommittee on financial institutions and consumer credit.
The letter to Rep. Shelley Moore Capito (R-W. Va.) follows this month's subcommittee hearing on H.R. 1418, the Small Business Lending Enhancement Act, at which CUNA testified. H.R. 1418 would lift the MBL cap to 27.5% of a credit union's total assets. CUNA has estimated this cap lift would add $13 billion in new funds to the economy and create 140,000 new jobs in the first year following enactment.
During the MBL hearing, bankers attempted to stir doubts that any unmet demand exists for small business credit, and therefore increased MBL capacity is unneeded. Some committee members questioned how much demand exists.
Cheney refuted the bankers' points in the recent CUNA letter, saying "the demand for small business loans is present in the market and the data suggest that banks continue to constrict credit availability while credit unions are expanding their business loan portfolios."
The CUNA CEO cited a Pepperdine Capital Markets Project survey that indicated that 95% of owners of privately held businesses wanted to expand their business, but only 53% had the financial means to do such. The report also found that 38% of businesses surveyed were seeking new sources of financing, and 65% of banks that responded to the survey said they had seen an increased demand for small business loans.
The CUNA letter noted that total bank business loan portfolios have declined by almost 14% during the current economic downturn, while credit union business loan portfolios grew at a healthy rate of over 40%. Any reduced borrowing from small businesses, and a corresponding reduction in small business expansion and job creation, "can be traced in large part to ongoing reductions in lending activity among the nation's commercial banks," Cheney said.
The letter also challenged banker statements that allowing increased credit union business lending would effectively "crowd out" bank business lending and said bank representatives grossly misrepresent the impact of raising the credit union business lending cap on their own lending volumes. "The vast majority of that new lending could be accomplished without any reduction in bank loans," the letter noted.
"With the banks controlling 95% of the commercial lending market, even a doubling of credit union market share would not significantly alter their dominance of this market," the letter said.
For the full letter, use the resource link.