Credit unions are watching a piece of legislation that is due to come up on the U.S. Senate floor in the next couple of weeks. Senate Bill 2231 would raise the percentage of its assets a credit union can commit to small business loans.

Not all credit unions make business loans. Those that do are limited to lending 12.25 percent of assets, which the credit union industry says is too low. The proposed legislation would raise the cap to 27.5 percent for credit unions that have demonstrated strong experience and responsible business lending practices.

“According to the Credit Union National Association (CUNA), raising the cap to 27.5 percent of assets would generate $13 billion in new small business loans in the first year alone, which would lead to creation of 140,000 new jobs – an economic stimulus without any taxpayer burden,” said Gary Grinnell, Corning Credit Union president and CEO in a letter to his credit union’s members.

Corning’s Wilmington branch – one of only a handful of credit unions that engages in small business lending in the Tarheel State - has been active in the Cape Fear region and sees the potential for more such loans. Grinnell said in his letter that, although many banks weren’t lending to small businesses during the recession and afterward, credit unions were.

“So much so, in fact, that many credit unions (including Corning Credit Union) are now rapidly approaching the arbitrary member business lending cap that is enforced by law,” he said.

According to the FDIC and CUNA, between December 2007 and December 2011, small business lending by credit unions grew nationally about 45 percent while banks’ small business lending fell almost 15 percent.

SB 2231 faces opposition from the banking industry, which sees the move as an invasion of their traditional turf. Ted Goldwyn, Corning’s director of business development and sales, explains that the banks’ position is that credit unions simply don’t have the experience in business lending to make sophisticated decisions and handle complex underwriting. However in response to critics, he cites data collected by the National Association of Credit Unions.

“Credit unions’ ratio of business loan charge-offs has been one-fourth that of banks,” Goldwyn said.

“When Corning decided to get into small business lending in early 2006, we hired experienced loan officers and executives to ensure that we were prepared to do a good job.”

North Carolina Credit Union League senior vice president of association services, Dan Schline, is tracking the status of SB 2231. When the bill comes to the Senate, which may happen as soon as the week of May 7, he thinks the body will muster the necessary votes for passage.

“We view the [increased lending capacity] as an opportunity for small businesses who have had banks cut their lines of credit or had their loans called. From the stories we’ve heard, the demand is there and not being met,” said Jeff Hardin, director of communications of the North Carolina Credit Union League.

Support from North Carolina’s senators is iffy: Sen. Richard Burr seems cool to the legislation while Sen. Kay Hagan is considering it.

Goldwyn agreed. “Generally, Hagan is a good supporter of credit unions but she’s getting a lot of pressure [from the banking interests],” he said.

If SB 2231 does pass the Senate, it will go to the House of Representatives, where Schline feels it has bipartisan support.

“Democrats and Republicans agree that small business is the engine that drives the economy,” he said. “Probably, when the bill comes up, they will see it in that light. Plus, credit unions have money to lend; they are not asking the federal government or taxpayers for money. It’s a very ‘private sector’ solution.”

Meanwhile, community banks are receiving some federal help to get small business loans flowing again.
On April 9, the U.S. Department of the Treasury released a report showing that North Carolina banks have increased their small business lending by $124.4 million since receiving capital through the Small Business Lending Fund (SBLF).

“This report shows that the Small Business Lending Fund is having a powerful impact,” said Neal Wolin, deputy secretary of the treasury, in a news release. “The program is helping spark new lending to local entrepreneurs looking to invest in their businesses and create new jobs.”

In the Cape Fear region, two banks have participated in the SBLF program: First Bank and Live Oak Bank.

The SBLF, which was established as part of the Small Business Jobs Act, encourages community banks to increase their lending to small businesses to help them grow and create new jobs. The Department of the Treasury invested more than $4 billion in 332 institutions nationwide, which produced an increase in small business lending of about $3.1 billion in the fourth quarter of 2011.

The Department of the Treasury’s news release stated that small businesses employ roughly one-half of all Americans and account for about 60 percent of gross job creation.  The release further noted that small business owners faced disproportionate challenges in the aftermath of the recession and credit crisis, including difficulty getting access to capital.