Credit unions hope for OK on more business loans - Finance ...

Posted: 4:52 pm Tue, February 21, 2012
By Mark?Anderson
Tags: Al Franken, Jeff Schwalen, Mark Cummins, Michael Ryan, Minnesota Credit Union Network, Small Business Lending Enhancement Act, Tess Rice

Jeff Schwalen, CEO of Hiway Federal Credit Union in St. Paul, recently traveled with other credit union officials to Washington, D.C., to push for a higher cap on business lending. (Staff photo: Bill Klotz)

Franken sponsors legislation to raise lending cap

Minnesota?s credit unions hope to get the OK from Congress this year to lend much more to businesses than current regulations allow. First, they?ll have to overcome a weak lending market and opposition from the banking industry.

Business lending by credit unions is capped now at 12.25 percent of all their assets. The Small Business Lending Enhancement Act, introduced in Congress last March, would raise that cap to 27.5 percent.

Minnesota credit unions are already gaining share in the business market ? their total commercial lending grew 7.3 percent year-over-year to $928 million.

But those volumes were dwarfed by the business lending by banks in the state. Lending by Minnesota-chartered banks ? not including giant lenders like Wells Fargo and U.S. Bank that are chartered elsewhere ? totaled $23.9 billion Sept. 30.

A little more than one-third of credit unions made any business loans during the year, according to the St. Paul-based Minnesota Credit Union Network (MnCUN).

But Minnesota members of Congress told state credit union executives, who visited Capitol Hill earlier this month, that increasing access to capital for small businesses was important, and they supported a role for credit unions.

?We met with senior staff for eight members of the delegation, and they were all positive about supporting the bill as a way to help accomplish that,? said Mark Cummins, MnCUN?s chief executive officer.

U.S. Sen. Al Franken, D-Minn., signed on as a sponsor of the Senate version of the bill. He said in a statement that the credit union expansion will help small businesses ?get the credit they need to grow their companies and create jobs.?

Since credit unions have money to lend, Cummins said, making additional business loans would benefit the borrowers and the lenders.

Credit unions need business loans to replace lower consumer lending levels, he said. Like community banks that lost most of their retail customers to giant regional and money center banks, credit unions lost some of the auto- and home-financing businesses that were staples of the credit union business model.

?We need business lending to provide the third leg of our revenue stool,? supplementing home and consumer loans, said Jeff Schwalen, chief executive at Hiway Federal Credit Union in St. Paul.

Those businesses have slowed during the recession, Cummins said.

Bankers oppose the business loan expansion because they say it would give an advantage to credit unions, which are nonprofits and exempt from corporate income tax, said Tess Rice, general counsel for the Minnesota Bankers Association.

?Banks have plenty of money to lend, but there aren?t creditworthy customers to keep the banks busy now,? she said. ?Saying that it?s necessary for credit unions to be lending to businesses is just incorrect.?

One of the credit union officials who traveled to Washington agrees about the shortage of borrowers.

Jeff Schwalen, CEO of Hiway Federal Credit Union in St. Paul, said his business loan portfolio has declined in each of the last two years. Hiway?s business volume fell from a level just under the 12.25 percent cap at the end of 2009 to 7.25 percent of assets now, or $59.6 million.

?We aren?t seeing much demand locally,? Schwalen said.

Still, there are small business markets that credit unions haven?t tapped yet. Nonprofit groups that work with small businesses such as Minneapolis Consortium of Community Developers and the Small Business Development Center at the University of St. Thomas said credit unions haven?t ventured into their niches.

?A lot of small community banks call me all the time, but we haven?t seen much small business lending with credit unions,? said Michael Ryan, director of the center at St. Thomas.

Cummins said that if the law is passed credit unions that are already active business lenders could make an additional $150 million in new loans.

?It is difficult to predict what Congress will do, but we are hopeful that they will see the benefit of this legislation and pass it this session,? Cummins said.

This entry was posted on Tuesday, February 21st, 2012 at 4:52 pm and is filed under Finance & Banking. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.

Source: http://finance-commerce.com/2012/02/credit-unions-hope-for-ok-on-more-business-loans/

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