The Small Business Administration and a leading credit union trade group are planning ways to boost lending in an area historically dominated by banks
The National Association of Federally-Insured Credit Unions and the SBA just renewed a February 2015 agreement designed to persuade financial cooperatives to make more government-backed loans. NAFCU and the SBA are also planning events to get more credit unions involved in SBA lending.
The initiative shows that the SBA views credit unions as a prime source for small-dollar loans, said Dan Berger, NAFCU’s president and CEO. Berger said 80% of credit unions’ loans are for $1 million or less, serving borrowers that banks have largely abandoned.
“The vast majority of those [loans] are $250,000 or less,” Berger added. “Despite any argument that’s out there, we’re filling a niche. [SBA Administrator Linda] McMahon recognizes that. The prior administration recognized that.”
Banking advocates were quick to dismiss such claims.
“I don’t think you’re going to find a banker who isn’t going to make a credit-worthy loan to a credit-worthy borrower regardless of size,” said James Ballentine, executive vice president for congressional relations and political affairs at the American Bankers Association. The small-dollar “niche credit unions are talking about is being filled very well by banks.”
Credit unions have made some inroads with SBA lending. Since 2006, the number of credit unions certified to make SBA loans has more gone from fewer than 150 to 389 as of June 30, Berger said. Of those, 194 have made at least one SBA loan this year.
Despite industry consolidation, the number of SBA-certified credit unions has increased by 4.3% since early 2015, Berger said.
“We’ve been educating credit unions since the first MOU,” Berger said. “I think you’re going to see Administrator McMahon be even more aggressive.”
Appearing at NAFCU’s Congressional Caucus last week, McMahon said she hopes the renewed partnership will “help improve access to capital … for aspiring business owners who cannot get loans elsewhere.”
NAFCU and the SBA plan to work to educate the roughly 5,400 credit unions that don’t participate about the merits of SBA programs. Outreach can come through webinars, training sessions and appearances at conferences. The ultimate goal is to have at least 250 credit unions hold a minimum of 10 SBA loans on each of their books by the time the agreement expires in 2020.
SBA signed a similar pact with the National Credit Union Administration in early 2015, agreeing to help familiarize examiners with SBA loans and to provide marketing and educational materials for other groups. Since then, SBA representatives have appeared at several conferences and a number of webinars. They have also participated in two training events for examiners.
Commercial lending by credit unions is a hot-button issue for banks.
The Independent Community Bankers of America filed a lawsuit last year, which was eventually thrown out, in an effort to block revisions to the NCUA’s regulations for member-business lending. The ICBA claimed that provisions easing restrictions on loan participations were designed to circumvent a congressionally mandated cap that limits most business loans to about 12.25% of a credit union’s total assets.
The guaranteed portions of SBA loans don’t count against restrictions on member-business lending.
Bank groups realize there is little they can do to stop the SBA from encouraging more participation among credit unions. Banks dominate the industry, making up the vast majority of lenders and originations, but they resent what they see as favoritism for credit unions.
“It’s frustrating,” Ballentine said. “You get the feeling you’re competing against the government. I think the message that’s being sent to banks who have long served the SBA is that there’s a competitor with an advantage. That’s the position the tax exemption and these types of MOUs put banks in.”