Banks may be stingy lending to business owners, but credit unions and merchant lenders are more optimistic. While loans to small business decreased during the recession from conventional banking sources, credit union and merchant loans were increasing. However, there are limits placed on how much a credit union can lend to businesses, typically only 12 percent of total assets.  Unfortunately, that means that once that limit is reached, often credit unions must stop lending until some of those loans are paid back. Now, credit unions are seeking to increase those thresholds up to 27 percent of total assets. If they can get Congress to approve that, it could significantly loosen the amount of credit available to small businesses.

New Legislation Introduced

Senator Mark Udall (D – CO) has introduced S. 509 that seeks to raise the limits on lending for credit unions to small business. This type of legislation has been introduced in past Congresses but has not gotten enough support to pass. Arguments against increasing the limit revolve around a lack of experience that credit unions have in the business world, but that may be changing. As the need for business lending become paramount to getting the recovery underway, the idea of simply allowing credit unions to lend more becomes more attractive.

A Boon for Business Owners

Should legislation pass, it will provide business owners another avenue to get funding for their businesses. Right now, only about one-third of all credit unions offer small business loans, but this could dramatically increase if the legislation goes through. There are about 7,500 credit unions in the United States and many are adding more services to attract customers who may have been turned down at conventional banks.

Banks Opposed to the Measure

Not surprisingly, big banks do not want this legislation to pass. They cite business inexperience as the top reason credit unions should not be allowed to do more business lending. However, after refusing to lend to many businesses during the credit crunch, they may find now that these same people are finding funding at credit unions or non-conventional lenders and refusing to go back to banks. With more lenders competing for viable borrowers in the market place, a rise in the credit union lending limits could eat into the big bank profits.

Credit Unions Require Special Conditions

Not everyone can join a credit union. There are usually certain organizations that you need to join or your company must be an approved member. It is not the same as joining a bank and you must meet their membership guidelines. Thus, even if the limits are increased there are still barriers to joining a credit union that must be bypassed before you can apply for a loan from your local credit union.  However, if you are a business owner, you should be looking now for that probability so that your business can be first in line if the credit union lending limits are raised and extra funds become available to small businesses.