ELAINE GUINEY
‘Interesting activity’
Adding fuel to the banks-vs.-credit-unions fire, the U.S. Small Business Administration has expanded its lending program by allowing both federal and community-chartered credit unions to offer the SBA’s 7(a) loan program for small businesses, and banks are not approving.
The SBA recently passed a new legal interpretation that will allow all credit unions to seek SBA approval to offer the popular 7(a) guaranteed loan program, which was previously limited to community-chartered credit unions.
The new approval opens the door for more than 10,000 credit unions around the nation to join the small business loan program, although the SBA predicts only about 1,500 credit unions will join.
Regardless of the number of credit unions that are eligible to participate in the program, the pool of loan money available in the SBA 7(a) fund has not changed, and members of the banking industry are not happy about sharing the available capital.
“There are 10,000 new associations being allowed to access the same pool of money, and that pool of money hasn’t changed,” said Bruce Spitzer, director of communications at Massachusetts Bankers Association. “This is a group of non-taxpayer entities making use of a taxpayer-funded program, and it’s outrageous.”
Expanding the SBA’s business loan program to include credit unions will help transform the agency into a more responsive, customer-centric organization, according to a press release from the SBA.
The change in policy was added as part of President Bush’s overall management agenda, which asked federal agencies to find ways to better manage for greater financial results.
The additional 1,500 potential credit unions that might join the SBA network of lenders represents a potential increase of approximately 30 percent in the overall number of storefronts nationwide where entrepreneurs can seek capital for their business.
In Massachusetts, there are a total of 125 credit unions across the state, and only a handful of them participate in commercial lending.
“I think it will be a slow buildup but it could make for interesting activity,” said Elaine Guiney, district director of the SBA’s Massachusetts district office. “In the past, we have been able to do business with only community credit unions and not all of them do commercial lending. It will be interesting to see how many [credit unions] from the 125 in the state sign up.”
Members of the National Credit Union League in Washington, D.C., applaud the efforts of SBA Administrator Hector V. Barreto and locally, the Massachusetts Credit Union League said Barreto is helping to open doors to increase business capital in the state.
“I look at it as Washington doing something good for the consumers in order to stimulate the economy, and across the board it just makes sense,” said Alfred Ricci, executive vice president of the MCUL. “A lot of credit union members want to start up small businesses … and the SBA is committed to serving the credit unions and the thousands of people that aren’t being served.”
In a press release from the SBA, Barreto said, “My first priority is to reach as many small businesses as possible. Expanding the number of lending partners we participate with is a good way to accomplish that.”
‘Huge Impact’
According to Guiney, credit unions in Massachusetts tend to be in places that are “a little more difficult to reach” than the metropolitan Boston area. Guiney said many credit unions are located in low- to moderate-income communities, making the additional participation in the 7(a) program available to small businesses that were unable to generate funds to open a business before.
“In Massachusetts, credit unions expand to reach the low- and moderate-income communities and if it’s smaller loans to smaller business, that is a niche we’ve been trying to reach and that’s a good thing,” said Guiney. “This is just an opening up to a variety of different lending institutions.”
But to some lending institutions, the change in the 7(a) loan program was unfairly administered.
“There should have been a formal comment period that allowed the SBA time for assessment of the impact of this change, because there is a huge impact,” said Spitzer. “It’s further evidence that credit unions want to act like banks and as such, they should pay their fair share in taxes.”
The 7(a) Loan Guaranty Program is one of SBA’s primary lending programs, providing loans to small businesses unable to secure financing on reasonable terms through normal lending channels. The program operates through private-sector lenders that provide loans, which are guaranteed by the SBA, because the agency has no funds for direct lending or grants.
Guiney said it was only a matter of time before the SBA linked credit unions to the loan program, but she said that in Massachusetts only a few credit unions participate in commercial lending so banks should not feel a large impact on business.
“Other federal agencies have been doing programs with credit unions … I think it’s a good thing because it expands the loan delivery system,” said Guiney. “I don’t think that there are so many credit unions in any given state to really put banks at a disadvantage. It’s unlikely that we are going to run out of money … The issue is competitiveness. A credit union is never going to compete with a larger bank, but they may better serve the communities that they are located in.”
Guiney said in Massachusetts, credit unions would have to go through a process whereby members of the SBA office would know that a member of the credit union is proficient in lending to small business.
Ricci said the addition of federally chartered credit unions to the 7(a) loan program is an important step in boasting the economy, saying, “Credit unions are good for our people. It’s another conduit for business capital and it’s good for the economy.”
Melanie Nayer may be reached at mnayer@thewarrengroup.com.
