Credit unions may see expanded access to federal guarantees for small business loans in the coming months as part of their efforts to boost member business lending.
Top officials with the Small Business Administration (SBA) told NAFCU representatives last week they are interested in broadening credit union access to SBA-guaranteed loans as a means to providing increased capital to small businesses. NAFCU, which has been lobbying for the past two years to pry open the SBA for credit unions, met last week with Hector Barreto, Jr., chief administrator at the SBA, and his staff to discuss how they can make more CUs eligible for the federally guaranteed small business loans.
"He recognizes that credit unions can be a very important channel in getting SBA loans out to people in need of that type of lending," said NAFCU lobbyist Bill Donovan, after the meeting.
The problem is, current rules at SBA only allow access to those credit unions that are community-based. That's because the agency has always considered the field of membership (FOM) restrictions applying to credit unions to pose a potential for credit unions to discriminate in their lending, according to Donovan. As a result, only 64 credit unions are currently eligible for SBA loan programs.
But Donovan said NAFCU hopes to convince the SBA that the FOM restrictions on credit unions should not affect their eligibility to participate in the federal guarantee program because the FOM limits are required by law. Such membership restrictions, noted Donovan, do not prevent other federal agencies, such as the Department of Education, from allowing credit union participation in their guaranteed loan programs.
NAFCU hopes that an obscure 25-year-old legal opinion issued by the SBA will encourage the agency to act on its request. In that opinion, the SBA's general counsel wrote, "in our opinion it would not be appropriate or consistent with the coordination mandate of Small Business Act for SBA to exclude 'any Federal Credit Union complying with the membership requirements of the (NCUA).'"
To bolster their efforts, NAFCU succeeded in getting 12 lawmakers to write Barreto last month urging the administrator to exercise his regulatory discretion and allow all federally insured credit unions to participate in the SBA's programs. "Such action on your part," wrote the lawmakers, "enjoys not only our own support, but also has been recommended by the federal agency with primary responsibility for the chartering, regulation, supervision and insurance of our nation's federal credit unions, the (NCUA).
"In light of your existing statutory authority, the needs of our nation's small business owners, the support of the credit unions' federal regulator and the willingness of federally insured credit unions to participate, we urge you to take immediate action to amen the SBA's Standard Operating Procedures to permit federally insured credit unions to offer the full range of SBA loans to their members," the lawmakers said.
The NAFCU work is an extension of credit unions' efforts to expand member business lending, restricted under HR 1151, the CU Membership Access Act, to a maximum of 12.25% of assets. Despite concerted efforts to expand business lending in recent years, business loans still comprise less than 2% of total credit union loan portfolios. The beauty of SBA guaranteed business loans is that they do not count against the new limits because the loans are guaranteed by the federal government.