Every week while driving to work I notice an increasing number of empty store fronts. A local restaurant, boutique or consulting firm that was there last week, is no longer there today. It makes me wonder how many of those local small businesses could have survived had they applied and been approved for a small business loan at credit unions.
According to the Arizona Small Business Association, there were just about 381,000 small businesses in Arizona in 2008. Think about how many more small businesses there could be if Arizona’s 49 credit unions had the ability to increase their business lending and offer new business loans.
Think about how many jobs that could create. Now think about the potential positive impact that could have on our economy.
Eighteen Arizona credit unions, about a third in the state, provide member business loans.
However, the current statutory cap is set at 12.25 percent of assets.
Many credit unions have refrained from entering the business lending arena because the 12.25 percent cap prevents them from earning sufficient income to cover the cost of starting up and maintaining a business lending portfolio.
Legislation in the Senate, S 509, has been introduced by Sens. Mark Udall (D-Colo.), Olympia Snowe (R-Maine) and Charles Schumer (D-N.Y.); and on the House side, HR 1418 introduced by Reps. Ed Royce (R-Calif.) and Carolyn McCarthy (D-N.Y.). If passed, both bills would increase the business lending cap to 27.5 percent of current assets.
If enacted, legislation raising the current statutory cap of credit union small business lending (from the current 12.25 percent of assets to 27.5 percent of assets) could result in $13 billion in new lending and 140,000 new jobs in just the first year nationwide and $144 million in new lending and 1,600 new jobs in Arizona, according to Credit Union National Association estimates.
“We hear from business owners all the time that have solid plans and want to grow, but the big banks won’t even talk to them,” says Paul B. Stull, senior vice president Strategy & Brand for Arizona State Credit Union. “Increasing credit unions ability to lend to these businesses is needed now more than ever. We can get the economy moving again, but the current economic gridlock is holding us back.
“Local financial institutions, like credit unions, know our markets very well. We understand Arizona and we know how to make Arizona loans for Arizona people.”
The unique benefit to this legislation is no U.S. taxpayer dollars would be needed; nor would any new government programs need to be created.
When other lenders pulled back during the financial crisis, credit unions stepped up to the plate and continued to lend. And even though credit unions are the only financial institution imposed with a statutory cap, member business loans have grown 3 percent in Arizona over the past year, compared with other financial institutions which have decreased an average of 7 percent. Many credit unions, however, may soon be approaching the statutory cap of 12.25 percent of current assets.
The average credit union small business loan in Arizona is $220,000; these are indeed loans to small businesses. With so many local small businesses struggling, these loans are increasingly necessary to support our local economy so it can once again thrive.
With less than 2 percent of the market, it’s important to note that credit unions pose no threat to commercial banks. Small businesses are often turned away from commercial banks because they are too small. This is where credit unions have the ability to fill in the gap.
Credit unions have a long history and good track record with their members of making small business loans, and making them prudently.
Since 1997 the net charge off rate for credit union small business loans in Arizona has been roughly one-fourth the average of other financial institutions (0.23 percent vs. 0.93 percent), and in 2011 averaged 70 percent of other financial institutions (0.91 percent vs. 1.29 percent).
Treasury, Obama Administration and our federal regulator, the National Credit Union Administration, are all in favor of this legislation. Those standing in the way are only impeding a path to sustain the growth of local economies by supporting small businesses and the jobs that they bring to our communities.
“Arizona needs jobs, businesses need loans to grow and now is the time for Congress to increase credit unions ability to meet those needs,” Stull says. “This is a quick fix to create jobs at no cost to the taxpayer. We are asking Congress to prove their commitment to growing jobs and this is one piece of legislation that does just that.”
For more information about credit unions, visit www.azstcu.org.