Credit unions are lobbying Washington to lift the cap on lending rules that have been in effect for 12 years. Currently, credit-union lending is limited to 12.25% of a credit union’s total assets. The Credit Union National Association is pushing to raise that limit to 25% of total assets.
The vast majority of credit-union loans go to small businesses. CUNA estimates that a change in the law would enable them to extend up to $10 billion in additional business loans.
Banking lobby groups oppose the legislation, saying that an increased cap would create a distorted competitive environment detrimental to community banks, also big lenders to small businesses, according to an article in the Wall Street Journal.
Credit unions were created to provide financial services to people of modest means, and members pay a small fee to join. They are member-based organizations with non-profit tax status – another bone of contention for the banking lobby. Credit-union lending to small businesses increased in 2009, while lending by community banks decreased, according to the WSJ.com article.
Banks contend that there is not enough oversight on credit-union loans, so customers are more likely to default on their loans.
Small business owners who were approved for credit-union loans after being turned down by banks said they faced a rigorous application process at the credit unions.
Matthew Rembe, owner of Los Poblanos Inn and Cultural Center in Albequerque, received a $3 million loan from a credit union to expand his business after a year of getting turned down at banks.
“There was major due diligence,” Rembe told the WSJ.com. “In the past we’d gotten easy money, so it was not what we were used to at that point.”
This article was submitted by Rohit Arora, co-founder of Biz2Credit. Biz2Credit is a small business marketplace that connects entrepreneurs with financing options and advice to grow their business. Send all questions to