PPP spotlights shortcomings in credit unions' small-business push

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If the Paycheck Protection Program was an audition for expanded commercial lending, many credit unions appear to have flubbed it.

The banking industry has fought hard in recent years against credit unions’ efforts to roll back legal limits on their business lending capacity. The argument by bankers has been that relaxing restrictions in the Credit Union Membership Access Act would open the floodgates and create unfair competition in commercial lending.

That hasn’t played out with the PPP, an emergency loan program designed to help small businesses keep workers employed.

Credit unions accounted for just 4% of the nearly 5 million PPP loans booked through June 30, and only 2% of the $521 billion in volume, according to the most recent data from the Small Business Administration.

The results “raise a question about whether credit unions can be a big source of credit to small businesses,” said Keith Leggett, a retired American Bankers Association economist who blogs regularly about credit unions.

“The data would suggest that they can’t,” Leggett said.

Several factors may have contributed to the lackluster numbers.

Roughly a quarter of the nation’s 5,100 credit unions have assets of less than $10 million, and 40% have no more than five full-time employees, said Michael Schenk, chief economist at the Credit Union National Association. Hundreds of larger institutions focus almost exclusively on retail customers, with little or no dealings in small-business lending.

Many credit unions were late to the game with PPP. And the Credit Union Membership Access Act caps member business lending by credit unions at about 12.25% of total assets.

All that may have put many credit union members is a difficult position, said Alex Ayers, executive director at the Family Business Coalition

“One of the things we got feedback from our members about was everyone that had a relationship with a credit union seemed to have a hard time finding a loan,” Ayers said. “They had to go to a different lender where they were at the back of the line because they didn’t have a pre-existing relationship.”

The Family Business Coalition released a report last month detailing what Ayers characterized as a tepid PPP response by credit unions.

Given the strong push since mid-April to direct program dollars to small and minority-owned businesses, “I found it very odd [that more] credit unions weren’t participating,” Ayers said.

Credit union leaders had a different take on the SBA data.

The numbers are “proof that America’s credit unions continue to be there for the people and businesses that keep Main Street strong, even in the toughest of times,” Jim Nussle, president and CEO of the Credit Union National Association, said by email Friday. “It’s at the very core of our ‘people helping people’ philosophy.”

Credit unions also made smaller PPP loans. Their median loan size was about $50,000, half that of banks and other lenders, Schenk said.

Credit unions "focused firmly on very small businesses," Schenk said.

To be sure, several credit unions have been aggressive with PPP lending.

The $1.2 billion-asset Greater Nevada Credit Union in Carson City made more than 5,600 loans totaling $556 million, said CEO Wallace Murray.

The credit union was able to use the program to boost awareness and bring in new customers, Murray added.

“A lot of borrowers were grateful, and they expressed their gratitude by moving some or all of their banking business,” Murray said. The credit union will "more vigorously pursue” SBA lending because of its PPP experience.

“We’ve been able to broaden our opportunities from a strategic standpoint,” Murray said. “It’s also helped that we’ve grown more comfortable with SBA as an agency.”

Mountain America Federal Credit Union in Sandy, Utah, and Notre Dame Federal Credit Union in Indiana have also topped $100 million in PPP originations, based on limited SBA data.

Credit unions have more time to participate now that the PPP has been renewed through early August.

Leggett said some larger credit unions — including Greater Nevada — have proven to be fierce competitors for small-business lending. Others are seeking to add lenders or pursue bank acquisitions.

In comparison, banks and thrifts have made more than 4.4 million Paycheck Protection loans for about $498 billion.

That momentum is leading some banks, like Flagstar Bancorp in Troy, Mich., to consider making more traditional SBA loans. The $27 billion-asset Flagstar, which has historically focused on mortgages, has made more than 3,000 PPP loans totaling $380 million.

In fact, shifts by retail-focused regionals like Flagstar could be the bigger threat to banks that are already involved in SBA lending.

The PPP “allowed us to amplify our involvement beyond” retail banking, said Brian Dunn, Flagstar’s chief of staff. “It allowed us to connect in a major way to small businesses in the community.”

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Credit unions Paycheck Protection Program Small business lending SBA Coronavirus