In the six years Black Hills Federal Credit Union has been authorized to do SBA lending, the financial institution said it is proud of its track record.
Roger Heacock, president/CEO of the $765 million credit union, testified June 10 on CUNA's behalf before the House Small Business Committee about expanding small business access to capital as a way to spur an economic recovery. The Rapid City, S.D.-based Black Hills wrote more SBA loans in its home state than any other financial institution in 2008, Heacock said. The credit union approved 29 loans for a total of more than $1.6 million, with an average loan amount of $56,703. The South Dakota SBA district office recently awarded Black Hills its district director leadership award.
Heacock applauded Congress for setting aside $375 million for the temporary elimination of fees on SBA-backed loans and raising the agency's guarantee percentage on some loans to 90% as part of the American Recovery and Reinvestment Act. He encouraged lawmakers to make additional funds available to the agency "so that fees can remain low and the guarantees can remain generous."
SBA fees have a direct impact on small businesses' ability to borrow under SBA programs, Heacock said. A 3% fee on a $200,000 SBA loan is $4,500 that the business must pay either at origination or over the course of the loan, he pointed out. "The fees can become an obstacle for us as a lender when we are working with a borrower," he said.
Heacock also suggested improving the SBA's e-mail system so that it would let lenders know about procedural changes and making the agency's Web site more user-friendly with up-to-date forms. While the SBA's e-tran system has made the application process more efficient, "As it has currently been implemented, we find it to be more time consuming" because it is difficult to complete forms and correct errors.
Even though CUNA has encouraged credit unions to use the SBA's 7(a) program, only 3% actually offer the loans, Heacock said. About 28% of credit unions with more than $500 million in assets offer 7(a) business loans. And, while the number of credit union 7(a) loans has grown steadily since 2003, such loans represent only a small portion (1.6%) of all business lending to credit union members.
Among the factors that discouraged more credit unions from participating as 7(a) lenders is the 12.25% members business lending cap and a restriction that limits participation to those with geographic or community charters, Heacock told the committee. That barrier was lifted in 2003, but community chartered-credit unions still represent a small percent of the industry, he added. Heacock urged Congressional leaders to eliminate the MBL cap and revise the statutory floor on what constitutes an MBL from the current $50,000 to $250,000.
Credit union business lending represents just 1.06% of the depository institution business lending market. Credit unions have about $33 billion in outstanding business loans, compared to $3.1 trillion for banking institutions, Heacock said.
"In general, credit unions are not financing skyscrapers or sports arenas; credit unions are making loans to credit union members who own and operate small businesses," Heacock said.