SmallBiz Vote

More credit union loans to small business? Banks say no

New York Democratic Senator Kristin Gillibrand is grabbing headlines in her state this week for pushing her colleagues to vote on the Small Business Lending Enhancement Act. The legislation, introduced by Colorado Senator Mark Udall in 2011, would address ongoing complaints about limited access to business loans by raising a cap on commercial loans that credit unions are permitted to make, based on a percentage of their assets.

Senate Bill 509, as it is known, "would amend the Federal Credit Union Act to advance the ability of credit unions to promote small business growth and economic development opportunities, and for other purposes." It has been sitting in the Banking Committee since March 2011.

According to a report published by public media aggregator Innovation Trail,

Passing the act would mean that credit unions could gradually increase their lending capability through a tiered system, with a new upper cap of 27.5 percent. Senator Gillibrand says passing this act would increase small business loans by $10 billion nationally, within the first year of enactment.

The result, according to Gillibrand, would be jobs and economic growth including 11,000 new jobs in New York state alone without any investment of taxpayer dollars.

Big banks oppose the bill, however, for reasons cited in a report released in November by the Capital Policy Analytics Group. The report asserts that "claims made by credit union advocates regarding job creation and economic growth as a result of an increase in the business loan cap are highly questionable."

Analyst Ike Brannon contends that the bill would have little impact on small business lending, because most credit unions don't even make business loans, and that the vast majority of those that do currently lend nowhere near the current cap.

On the other hand, he reports that "any additional commercial lending by credit unions — as a result of a new law, regulatory fiat, or otherwise — will result in a net loss of tax revenues to the federal government as taxes that would otherwise have been paid by commercial banks making those loans are not paid by tax-exempt credit unions. The most recent estimate by the Congressional Budget Office pegs the lost revenue at nearly $16 billion."

Among the bill's 22 cosponsors are four Republicans and an Independent, but its chances for passage are slim. The Govtrack.us prognosis for this bill: a 10 percent chance of getting out of committee, and 2 percent chance of being enacted.

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