One of the topics making news over the last few weeks has been Credit Union business loans. The reason may surprise you. Credit unions are completely member owned and therefore are never a burden to taxpayers, yet they are restricted when it comes to business loans.
As it stands right now, credit unions are only allowed to maintain a business loans portfolio of 12.5% of their total assets. This seems like a smart idea because of the number of bad loans extended in general since the credit crunch of 2008 but since the behavior of credit unions do not effect the taxpayer, it is time to raise the caps and let credit unions lend and fill the void in the marketplace.
Credit unions have shown an uncanny willingness to make loans over the last six months at a time when traditional banking lenders have cut back. An example of just how desperate credit unions are to originate business loans is the story regarding KIVA. KIVA is a website which helps entrepreneurs raise capital by allowing members to loan as little as $25 to a bigger traunch which goes to make up the desired amount of a business loan requested by the borrower.
This minimizes exposure to risk for the members who may choose to spread their investment in tiny amounts over dozens of loans and also opens up opportunities for small business to get financing. Some credit unions were funding initial loans on KIVA until the desired loan amounts could be raised from members on the site. A pretty resourceful idea if you ask me but it turns out that using funds like this counts against the asset cap and is a violation of the law as it pertains to credit unions.
The answer would be to raise the credit union asset cap as it relates to business loans and get more money into the hands of small business where it is desperately needed. Remember credit unions are different from regular banks and the business loans made by them are not backed by the SBA and therefore are not governed by the same restrictions. This means that the application process is more efficient and the qualifications, although stringent, are not as demanding. Simply put, it easier to qualify for a credit union loan than an SBA loan.
On key factor supporting the idea is that the small business lending fund which entices community banks to request capital in order to lend to small business has been less than a success to put it mildly. Community banks have shown less interest than anticipated by program officials and the result is that those needing business loans the most are simply not receiving them. Since there would be no out lay of funds if credit union caps are raised, it would seem like no brainer legislation.
Keep in mind that we are only talking about credit union business loans here and there are several other options for business owners looking for capital. We always suggest the free application process for an unsecured loan based on personal credit in order to fund business. The loans have no collateral and have no restrictions on how proceeds are used. To find out more, simply click on the form to the right.