By Karen Axelton
Small business financing could get easier to find if two pieces of pending legislation pass. Recently introduced by Kurt Schrader (D-Ore.) and Steve Chabot (R-Ohio), the Credit Union Small Business Lending Act (H.R. 4191) would make it easier for credit unions to participate in Small Business Administration (SBA) loan programs.
Another pending bill, H.R. 1418, would raise the cap on how much credit unions can lend to businesses. Currently, credit unions can lend a maximum of 12.5 percent of their assets to member businesses. The bill would raise that percentage to 27.5 percent, significantly expanding credit unions’ ability to make small business loans.
More and more small businesses have been turning to credit unions in the aftermath of the recession, Small Business Trends reports. It’s easy to see why: Over the past year, credit unions have steadily increased the percentage of small business loans they approve, from 51.2 percent in May 2011 to 57.6 percent in May 2012, according to the Biz2Credit Small Business Lending Index. In contrast, the majority of small business loan applications to banks are rejected.
“Allowing credit unions to do more to help small businesses is an important step toward helping our nation recover from the current economic downturn,” says Robert Marquette, at-large director for the National Association of Federal Credit Unions (NAFCU), a national organization that focuses on federal issues affecting credit unions.
The average credit union small business loan is for $185,000—a small enough amount that loans of this size are often difficult to obtain from banks. Testifying before Congress about the need to pass both bills, Marquette told legislators that since the end of 2007, applications to credit unions for small business loans have grown from $87 million to $259 million in 2011.
According to Rohit Arora, CEO of Biz2Credit, there are several key reasons credit unions are increasingly becoming a funding source for entrepreneurs. Credit unions are typically more involved in the local business community than bigger banks, generally have more flexible lending requirements, can make lending decisions more quickly and are less reliant on automated scoring. What’s more, many credit unions even offer better financing rates than bigger banks.
Have you used credit unions to finance your small business?
Image by Flickr user cometstarmoon (Creative Commons)Google+