Government pushing to spur more business loans by credit unions
A pair of government agencies have a new plan to spur credit unions’ interest in Small Business Administration loans.
The SBA and the National Credit Union Administration announced a three-year agreement aimed at informing credit unions that SBA programs can help provide affordable credit to small businesses. The agencies pledged to step up efforts to inform credit unions with webinars, training events and media outreach.
While bankers have been concerned that credit unions would swoop in and take away meaningful market share, that hasn’t been the case so far.
Through Dec. 31, none of the top 100 7(a) lenders in fiscal 2019 were credit unions, and fewer than 200 credit unions had made an SBA loan in the past 16 months, according to SBA data. The agency’s fiscal year began on Oct. 1.
In the 2018 fiscal year, the number of credit unions participating in the 7(a) program fell by 10% from a year earlier, to 178, and the number of 7(a) loans decreased by 11%, to 1,328, according to data from the SBA. Overall 7(a) volume from credit unions declined by 9.6%, to $309 million.
Credit unions contributed to just 1.2% of all 7(a) originations in fiscal 2018.
The agreement between the SBA and the NCUA is the latest effort to promote SBA programs to credit unions. It is broadly similar to a three-year agreement the SBA reached with the National Association of Federally-Insured Credit Unions in September 2017; the two also signed a deal in February 2015.
Bankers, irate about credit unions’ increased dealings with commercial loans, reject the notion that those institutions have spurned small-dollar lending.
While SBA lending by credit unions has stalled, other lending categories have increased. For instance, member business loans increased by 2.6% in 2018 from a year earlier, to $66 billion, according to NCUA call report data.
Scott Heitkamp, CEO of the $242.2 million-asset ValueBank Texas in Corpus Christi, called the SBA-NCUA agreement worrisome "because this is another attempt for credit unions to get in the commercial lending business."
Small-dollar lending is central to ValueBank's business model, Heitkamp said.
"We help small businesses every day, and that includes those that need smaller loan amounts," Heitkamp added. "Our niche is small-business lending, and as an industry community banks make up a large percentage of small-business loans. I think it’s something like 90%."
“Banks are active in the small-dollar SBA loan space and pursue those opportunities aggressively," said James Ballentine, executive vice president for congressional relations and political affairs at the American Bankers Association.
Ballentine also called on the SBA to continue to improve its internal processes.
Other recent developments could encourage more credit union participation in SBA lending, including a revision to the member business lending rule that no longer requires loans secured by one- to four-family properties to be counted against the statutory cap on business loans.
Ann Kossachev, NAFCU’s director of regulatory affairs, said more than a third of the credit unions that responded to a survey the association conducted in February indicated that the rule change had allowed them to make more business loans.
The Credit Union Membership Access Act caps member business lending at about 12.25% of an institution’s total assets.
“We’re really happy to see the two agencies are working together,” Kossachev said. “Any work done to further access to capital is a really positive thing.”
While the SBA’s lingering reputation as a cumbersome lender of last resort may have kept some credit unions on the sidelines, “the truth is SBA is the best thing that could happen to a business, especially if it’s a startup,” said Michele Kors, director of business services at Heritage Federal Credit Union in Newburgh, Ind.
The $608 million-asset Heritage recently got into SBA lending. The credit union’s members have been inquiring about $50,000 credit lines, $100,000 equipment loans and $350,000 commercial real estate loans, Kors said.
“Credit unions are getting more involved in small-business lending, and SBA is an important tool,” Kors said. “I’m a complete supporter of SBA. You can’t beat it."
Most SBA loans made by credit unions are small, with many under $100,000 in size, Kossachev said.
“We’re not going to be doing large loans,” Kors said.
“A lot of times they tell us banks have turned them down because the loan amounts are too small,” Kors added. “America’s foundation was built on small business, and Heritage wants to continue that legacy."