The Small Business Lending Enhancement Act was introduced to congress to allow credit unions to raise their lending cap to provide easier access to small business loans. The theory behind it is that lending caps hold back job creation which is a main focus in a political year.
The politicians in support of the bill claim its passage would create over $13 billion in freed up lending capital and create almost 150,000 jobs a year with absolutely no cost to taxpayers. It sounds too good to be true, and you know what that means.
What business owners want and need are favorable business loans, and if you look below the surface of the bill, you will see that it probably will not deliver. What seems like good legislation only tricks people into thinking help is on the way.
Credit Unions have tax advantages over Community Banks which handle most of the small business lending we hear about. The credit unions are limited by the percentage of their assets they can lend and raising their caps would do nothing more than shift loans in process in the Bank pipeline over to the Credit Union pipeline. So who really benefits besides the tax advantaged credit unions?
Nobody, and here’s why.
Credit Unions already have a nice piece of the business lending market and their loans which are less then $50,000 do not even go towards their cap. So the extra money they have to lend as a result of the legislation would turn their focus toward larger, and much riskier, commercial loans where they have little expertise. The last thing we need is for Credit Unions to venture out into these waters.
The appeal of these types of loans can lead to Credit Union failures just like we saw with traditional banks. Remember Credit Unions do not pay taxes like community banks who pay nearly a third of their revenues to the government. So this Act, which is technically a government subsidy for Credit Unions, will harm the Community Banks much more than it will help the Credit Unions.
The most important thing to realize here is that while the Small Business Lending Enhancement Act may shift the power for small business lending toward Credit Unions, it will do nothing for the people who need access to business loans in order to create the jobs promised by the Act itself.
While its passage will create some competition in the marketplace, the consumer will not really benefit from it. It most cases it would not matter, but if when we are talking about the government teaming up with a certain segment of an industry, then the consumers should be the ones to benefit from it.
Will the cost of a loan be cheaper for a borrower? Probably not. Will loans be easier to get? Not a chance. So what’s the point?
The point of the Act really is to help politicians look good in election year by promoting legislation that sounds good to business owners because they think help is on the way. It may create more revenue for Credit Unions, but only by harming Banks already out there lending.
For people in need of business loans, there will be no difference because if you cannot qualify for a bank loan then will not qualify for a credit union business loan either. The key is to understand the options you already have in front of you whether you are a start-up or looking to expand.
We recently touched on the subject of credit union business loans with an understanding that although interesting, it probably does make too much difference for people with little business credit history.
However, Loans have always been out there and are easier to get than ever and we can get you qualified for a minimum of $50,000 based on your personal credit score no matter what the Politicians are doing.
