Boosting the Local Economy with Local Business Lending

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What if someone told you we could produce 5,242 new jobs in Michigan and invest an additional $430.8 million into local businesses at no cost to the taxpayers?

As you pondered that query, you may have been filled with excitement, you may have been filled with doubt, but either way — you wanted to know more. Those projections come from the Credit Union National Association (CUNA) based on an analysis of Member Business Lending (MBL) results. The projections were based on credit unions that could lend up to 25 percent of their asset size1.

Currently, credit unions can only lend up to 12.25 percent of their asset size, which inhibits many such organizations from becoming more viable business lenders. It also limits the options of local business owners who are turned away by commercial banks.

This limit on credit union business lending hasn’t always been around. It was tied to the Credit Union Membership Access Act of 1998 that made credit union membership available to more people, and restored credit unions’ ability to serve their entire communities rather than just small organizations and groups2. So, why would the federal government limit a community institution’s ability to contribute to local business growth? They buckled under pressure from big banks that didn’t want credit unions competing on their turf.

CUNA summarized the problems best in a recent review of legislative issues2:

  • There is no economic rationale for the limit.
  • Small businesses are finding it increasingly difficult to obtain credit as banks have limited their own business lending.
  • The current limit deters new entry into the MBL business.

Proponents of the move to raise the cap were near success in 2009; a bill had made it to the House, but our efforts were once again stopped by the banking industry. In 2010, credit unions experienced 9.0 percent growth in member business lending while banks continued to record negative commercial loan growth. Despite their inability to lend and the benefits it would provide to the economy, they are unwilling to compromise on the issue.

This year, the Michigan Credit Union League will continue to urge Senators Debbie Stabenow (D-Mich.) and Carl Levin (D-Mich.) to co-sponsor MBL legislation in the U.S. Senate. I am also working to inspire action. In 2010, Community Choice loaned over $16 million to local business owners in southeast Michigan while credit unions nationwide loaned more than $30.5 billion as of the third quarter.3 A raise in the lending cap would give us the ability to hire more business lenders as well — I’d love to be a part of creating more jobs in our community, wouldn’t you?

Would you like to see credit unions expand their MBL services? Tell me what you think. Better yet, tell your legislator what you think.

1. Credit Union Member Business Lending Overview: http://www.cuna.org/download/mbl/MBLSummary-MI.pdf
2. 110th Congress, Legislative Issues A – Z: http://www.cuna.org/gov_affairs/legislative/issues/2008/curia_tp_mbl.html
3. Member Business Lending Credit Administration: http://www.cumanagement.org/article/view/id/Member-Business-Lending-Credit-Administration

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