Wisconsin CU League News Release - 10/26/09
Credit unions stand ready to rescue businesses imperiled by credit crunch
The not-for-profit, member-owned institutions are filling lending void noted by banking trade group
Pewaukee, Wis. - If a bank has turned you down for a business loan, don’t give up – contact a credit union. That’s the advice of The Wisconsin Credit Union League, the trade association representing 240 of the not-for-profit, member-owned financial institutions.
“Since their inception, many Wisconsin credit unions have been making loans to members for business needs, and because they didn’t get caught up in the risky lending practices so many institutions engaged in they are financially strong and ready to make loans using the same sound criteria they’ve always used,” says Brett Thompson, League President & CEO.
He was reacting to claims in the press by Wisconsin Bankers Association President Kurt Bauer that pressure from regulators is forcing for-profit banks to restrict credit to otherwise creditworthy borrowers. Not-for-profit credit unions have been applauded by examiners for their relative strength and stability, Thompson says.
“Credit unions literally have billions to lend but aren’t always the first to come to mind in the business community because banks have always dominated the market for business loans,” he says. Wisconsin banks control 97.7% of the marketplace for business loans. By contrast, credit unions have just 2.3% of the business loans in the state.
“Banks have achieved this market share by making the big, multi-million dollar loans that drive profits for their shareholders,” Thompson says.
Credit unions, he explains, are willing to make smaller loans and offer other free services to help entrepreneurs understand and manage costs – because they have no shareholders, only members looking to the institution they jointly own – a financial cooperative – for help. A U.S. Treasury study found that more than half of credit unions’ member business loans go to households with incomes below $50,000 – a niche that only not-for-profit lenders typically value.
“Credit unions’ average business loan is a mere $139,746 – an amount banks may consider an unprofitable pittance but for business owners is critical funding,” Thompson says. “For many businesses, being denied credit now is a death knell. And it’s not because the business isn’t viable. If their financial institution would help them, these are firms that will weather the current economic storm. And in many cases, they’re trying to avoid further job cuts, so keeping credit flowing to these enterprises is critical to healing the economy,” he adds.
Thompson says credit unions have related stories about helping entrepreneurs who – despite having stellar credit histories and significant equity and assets – came to credit unions after banks refused a loan request deemed “too small.” Members have also come to credit unions after banks have unexpectedly pulled credit lines despite borrowers making timely payments – leaving businesses in danger of folding.
“The situation you’re seeing – banks avoiding modest loan needs – will never change. Banks’ priority is profit-making. Credit unions’ priority is serving members. So they’re not competing for the same loans,” Thompson emphasizes. “If banks don’t want the kind of loans credit unions make as a matter of routine, there’s no sense in inhibiting businesses. The law has to change.”
Thompson is referring to federal legislation that currently restricts credit unions’ business lending to 12.25% of assets or 1.75 times their net worth, whichever is lower. The limit, applicable only to credit unions, was enacted a decade ago at the urging of the for-profit banking lobby, which cited a concern for safety and soundness that has proved to be groundless. In 2008, for example, Wisconsin credit unions had one-tenth the business loan net-charge off rate of Wisconsin banks, 0.23% vs. 2.06%.
Thompson says that lifting the cap could inject as much as $10 billion into the national economy in the first year alone without costing taxpayers a dime and without expanding government. Some credit unions that have money to lend are currently up against the cap.
“Credit unions have been making safe, sound business loans to members since the first credit union in America was formed 100 year ago,” Thompson adds. “Preserving an arbitrary limit on these loans only hurts our nation’s economic recovery as well as the 90 million members who depend on a local business for their livelihood.”
Members’ funds are safe at credit unions because they are insured to $250,000 per account by the National Credit Union Administration (NCUA), an agency of the federal government.
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