When the Recovery Act made it possible for credit unions and other lenders to take advantage of a 90% guarantee from the SBA, as of April, small business owners received their share of $23 billion.
But the clock is ticking with the raised guarantee set to expire by December. Kent Moon, president/CEO of Member Business Lending LLC, has been an advocate of SBA lending because the agency's loans, particularly the 7(a) program, have the ability to move into the secondary market and can carry a potential loss rate of zero and offer high return on assets. A former SBA district director in Utah, he remembered when the agency had a 90% guarantee in place about 15 years ago.
The recent emergence of the higher guarantee has come down to timing.
"It's like you're Sacramento in 1848. You look down and see gold twinkling around your feet," Moon said. "A year later, it's the gold rush. But if you waited until 1850, all the gold would be gone."
SBA loans are sticky products with most staying in a portfolio between four and 14 years, Moon said. They also build profitable relationships. The average small business deposit account is $17,000. With NCUA expressing more concern about concentration, Moon said SBA loans offer portfolio diversification and the guaranteed portion does not count against the member business lending cap. They are also a source of noninterest income. Even with all the SBA has to offer, credit unions still need to have a substantial amount of support to develop a program, he added.
Meanwhile, the business lending CUSO model is being eyed outside the industry, Moon said. "Community banks aren't dumb. I predict you will see a CUSO concept creep up in here." Still, credit union CUSOs probably have the patent of creating economies of scale.