Home > Personal Finance > Congress, Stop Squabbling and Let Credit Unions Make More Small Business Loans

Comments 3 Comments

Bagels_Beccah!_CCFlickrA credit union saved Suzanne Hermann’s business, literally. It also saved her $30,000 that she was about to write off as an expensive lesson.

Hermann had built and run a successful chain of three coffee shops and a bagel shop in Augusta, Ga., some fifteen years ago. After she started a family, and relocated to San Antonio, Texas, she decided to do it all over again. With her track record, the thought that she wouldn’t be able to get financing never even occurred to her. She wrote up her business plan, signed a lease, and plowed $30,000 of her family’s funds into the venture.

Then she discovered that banks weren’t the least bit interested in lending her the money she needed to get started. “I must have called on fifteen different financial institutions,” she said. “Most of them didn’t even want to meet with us,” she says.

[Resource: Where Can I Get My Credit Scores for Free?]

She was about to throw in the towel when her husband spotted a billboard for Randolph-Brooks Federal Credit Union and asked his wife if she had talked with them. She hadn’t thought of approaching a credit union, but figured it wouldn’t hurt to try. “We were up against a brick wall, and about to throw in the towel,” she says.

Within two weeks she and her husband had the loan and the Bagel Factory was in business.

Like Hermann, many people don’t think of credit unions first when they think of small business loans. In fact, “the earliest credit unions formed in the early 1900s made small business loans,” says Bill Cheney, President and CEO of the Credit Union National Association. And they have a good track record, with low loss rates on loans that are sometimes made to small business owners like Hermann who couldn’t get the time of day from banks.

But about 60% of the credit unions who make small business loans are reaching the limit on how much they can lend. It’s not because there is a shortage of borrowers who want these loans, or even because they are overextended, but due to a legislative change in 1998 that effectively capped the amount of money credit unions can lend to small businesses at 12.25% of a credit union’s total assets.  The cap may also be stopping other credit unions from starting small business lending programs. Why invest in the technology and training required to make these loans only to be stopped when the program starts to become successful?

[Credit Card Roundup: Business Credit Cards for Different Needs]

Senator Mark Udall (D-CO) is trying to do something about it. He has introduced S. 509, The Small Business Lending Enhancement Act of 2011 to raise the annual cap to 27.5% of a credit union’s total assets for credit unions who have a track record in small business lending. New entrants would have to prove themselves over five years before they can lend the maximum amount permitted.

It’s not the first time he’s championed this effort. Last Congress, he did the same thing. “In some ways though, I feel like this is Groundhog Day—all over again,” wrote Senator Udall in a blog in The Hill.

If this legislation passes, credit unions can make more loans to small businesses. There’s no cost to taxpayers, no “too big to fail” concerns and credit unions aren’t usually associated with reckless loans. (Since 1997, credit union member business loan net charge-off rates have averaged 0.19%—less than one-fourth of that of banks, says CUNA).

What’s Not to Like? »

Image: Becca!, via Flickr.com

Pages: 1 2

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team