The 27 million American small businesses generate nearly half of our gross domestic product but many are reeling from the government-imposed lockdowns. Congress passed two pieces of legislation providing nearly $660 billion in small business loans but it can do more to assist businesses without added cost to the taxpayer, with credit unions eager to help.
Small businesses were the hardest hit when the coronavirus caused non-essential businesses to shut down in March. These businesses did not have enough money to sustain their daily operations without customers, and many will be forced to shut their doors permanently without access to cash.
On May 12, the National Credit Union Administration campaigned for Congress to allow credit unions more flexibility to administer loans in an effort to meet the overwhelming demand for cash from small businesses. In his testimony before the Senate Banking Committee, NCUA Chairman Rodney Hood provided senators with several recommendations that will accelerate credit unions’ abilities to help businesses. Crucially, Chairman Hood urged Congress to temporarily raise the member business lending cap.
As Chairman Hood noted in his testimony, “Business loans that lack government backing can make up only 12.25 percent of most credit unions’ balance sheets.” Since the small business demand for credit has drastically increased as a result of the health emergency, the SBA has faced difficulties meeting that demand. Credit unions have capital sitting on the sidelines that could be better used to meet the needs of small businesses and stimulating the economy.
Originally conceived to help community farmers purchase equipment, credit unions have been making member business loans since the first U.S. institution opened in 1909. It wasn’t until 1998 that a bill was signed into law capping the percentage of assets allowed to be loaned out for this purpose as part of the Credit Union Membership Access Act.
Though capped, these loans have always been essential to the missions of credit unions. Traditional banks would not make 80% of the member-business loans credit unions make, according to the Small Business Administration. As such, they are indispensable to small businesses at a time when cash is essential to survival.
The $350 billion congressional allotment to small business was quickly depleted within two weeks, and congress replenished the fund with an additional $310 billion.
But Nancy Pelosi and House Democrats pushed through a roughly $3 trillion bill and filled it with progressive priorities. Senate Majority Leader Mitch McConnell (R-Ky.) indicated the Senate will consider legislation “in a month or so” if an additional relief bill is necessary. When the Senate considers more relief, removing the member-business loans cap imposed on credit unions for one year should be included in any future relief bill.
“Taking action now will free up $5 billion to lend to small businesses [and] create 50,000 jobs to support local employers,” CUNA Chief Advocacy officer Ryan Donovan said, referencing the provision to throw out the 12.25% lending cap on credit unions to meet the challenge of the moment. A one-year moratorium on credit union member business lending would give small businesses access to capital from the credit union directly and get workers off the sidelines.
Congress should immediately eliminate the 12.25% credit union lending cap for one year as an additional tool to get critical funding in the hands of small business owners now.
Ryan Goff is federal affairs associate with Americans for Tax Reform.