Despite opposition from the banking industry, officials at the Small Business Administration appear poised to eliminate the restrictions that have kept all but a handful of credit unions from participating in its guaranteed loan programs.
Ronald E. Bew, the SBA's associate deputy administrator for capital access, said last week that allowing more credit unions to participate would help the agency meet two of its primary goals: increasing the number of loans it guarantees, and reducing the average loan size.
Last year the SBA guaranteed approximately 43,000 loans with an average size of $230,000 through its popular 7(a) loan program, and Mr. Bew said he wants to reduce the average loan size to about $175,000 while "dramatically increasing" the number of loans it guarantees. "Our priority is to expand the number of loans we do and reach out and touch more businesses."
Though Mr. Bew, a former banker, said he was still "examining the situation," he added that approving more credit unions as lenders would "probably" help the SBA meet its targets.
"I think it would be helpful if we could use any avenue we could find to make loans," he said.
Only credit unions with community charters - 76 in all - now have access to the SBA's guaranteed loan programs. Agency officials have been weighing the possibility of extending the privilege to all of the nation's more than 10,000 credit unions, and a decision is expected shortly, according to Mr. Bew. (It does not need congressional approval to change the eligibility rules for the 7(a) program.)
Eric L. Richard, the Credit Union National Association's chief counsel, said that his Washington-based trade group "is reasonably hopeful we'll get the answer we want to hear."
Keeping credit unions out of the small-business lending market, the bread-and-butter business of most community banks, is a top priority of the banking industry, in part because the number of available loan guarantees could shrink significantly in the next fiscal year, which will begin Oct. 1.
President Bush's fiscal 2003 budget would cap the amount of SBA-backed loans at $4.85 billion, slightly more than half the total for the current fiscal year.
Christopher L. Williston, the president and chief executive officer of the Independent Bankers Association of Texas, said "any move" that would make it easier for credit unions to qualify as SBA lenders "would be vehemently opposed by us and every one of our members."
The SBA issue is a particularly hot-button topic because loans guaranteed by the federal government do not count against the cap in the Credit Union Membership Access Act of 1998, which limits a credit union's commercial lending to 12.25% of its assets. As a result, some of the credit unions that have qualified as SBA lenders have been able to increase their small-business loan portfolios to well above 12.25% of their assets.
For example, as of June 30, Telesis Community Credit Union of Northridge, Calif., had a business loan portfolio of $91.6 million - 33% of its $279.1 million of assets - according to the National Credit Union Association. Royal Credit Union of Eau Claire, Wis., had $135.9 million of member business loans - 24% of its $572.7 million of assets.
Keith Leggett, the senior economist at the American Bankers Association, said that any easing of the SBA's restrictions on credit union participation would be bad news for banks, especially community banks.
"Community banks are getting pressed in every direction," he said. "The small-business market is sort of their last domain."
However, Grace Y. Mayo, the president and chief executive officer of Telesis, argued that banks were exaggerating the competitive threat credit unions pose when it comes to small-business lending.
She also said that most of her credit union's small-business customers were too small to get bank loans. They include a gym owner who has already been turned down by one local bank and the operator of a small housecleaning service, she said.
Larry Accola, who runs Royal's small-business lending operation, added that many of his credit union's commercial borrowers are entrepreneurs seeking loans for trucks and other equipment, or lines of credit as small as $20,000.
Mr. Leggett called the push for broader credit union access to the SBA's lending programs part of a "piecemeal" attempt by credit unions to dismantle their commercial lending cap.
The credit union industry is also seeking exemption from business lending caps for faith-based credit unions, and they want to make it easier for individual credit unions to sell business loans to corporate credit unions - institutions similar to correspondent banks - he noted.
"It's part of a concentrated campaign," Mr. Leggett said. "Credit unions' consumer margins are getting squeezed, so they see the small-business market as a way to make money."
