Driven by concern over the limited availability of credit for independent businesses, AIB has submitted comments largely in support of a proposal to give credit unions more flexibility to meet the needs of small business borrowers.
The National Credit Union Administration, the federal body that regulates credit unions, has proposed regulation that would lift existing prescriptive rules that set hard-and-fast standards on issues like personal guarantees and collateral. Instead, credit unions would be allowed to develop their own business lending underwriting policies, which would be reviewed yearly by their regulator. This is more akin to how banks operate.
AIB expressed support for the proposed regulation, with a modest caveat about how participation loans that are commercial in nature are regulated.
Gaining access to credit has become a major impediment for new and growing independent businesses, especially those that are small. When AIB conducted its annual Independent Business Survey this year, it found that of independent businesses that needed a loan in the last two years, 30 percent had been unable to obtain one. Small businesses owned by people of color and women fared even worse. These findings echo federal data that show that lending for big businesses is well above its pre-recession peak, while small business lending remains depressed.
A major factor behind this troubling trend is that giant banks devote comparatively little of their resources to small business lending. As the banking industry has consolidated, and their market share has grown, overall credit availability for small businesses has shrunk.
Meanwhile, though, credit unions have been doing more small business lending, and now account for 7 percent of small business loans. This growth has made up for a portion of the small business lending lost to banking consolidation.
AIB believes that NCUA’s proposed rule changes will give credit unions more flexibility meet the credit needs of local businesses, and thereby increase overall lending to small businesses.
To download the full text of AIB’s comments, click on the image of the letter at right.