Member Business Lending Cap Keeps CUs Out of the SBA Biz
Credit unions aren’t willing to make the initial investment required to offer Small Business Administration-supported loans if they face a restrictive cap, Redwood Credit Union President/CEO Brett Martinez told a House subcommittee.
“That’s where the business lending cap ties in,” Martinez told Credit Union Times on Friday after his testimony on Thursday. “The 330 credit unions that are currently making SBA loans are managing to the cap, and the rest say it’s a big investment of time and money, to just hit a cap in the future. No thanks.”
The 220,000-member, $2 billion-asset Santa Rosa, Calif.-based credit union is the largest SBA credit union lender in the country by loan volume, and Martinez said his financial institution is at 75% of the cap.
If the cap isn't increased, Redwood could only make member business loans for another 18 months, he told the panel.
The credit union has about $190 million in outstanding member business loans and $68 million in SBA loans, and has had to sell some of its business loans on the secondary market to stay within the MBL cap, Martinez said.
“It’s not a lever I want to pull, but one I can to allow us to continue to lend,” said Martinez, who was testifying on behalf of CUNA.
He urged lawmakers to extend the SBA 504 refinance loan program and the SBA 504 First Mortgage Lien Pool programs, which facilitate secondary market sales. Both are scheduled to expire this September.
NAFCU witness Bob Marquette, president and CEO of the $2.2 billion Members 1st Federal Credit Union in Mechanicsburg, Pa., told lawmakers his credit union has maintained an active MBL program, even when other area business lenders have retrenched. Now, the credit union is at 90% of its MBL cap and now has to be selective about the MBLs it issues.
“We estimate that Members 1st funded business loans in 2011 created 52 new jobs in our area and helped save 269 more,” Marquette testified. If Congress would raise the cap as proposed by H.R. 1418, he said, his credit union could do a better job of meeting demand “and be even more competitive with our loan rates.”
SBA’s programs have worked well for some lenders, but Marquette said SBA processes are challenging. His credit union has originated two 7(a) program loans and three 504 program loans. Though Members 1st worked with a community development corporation on the 7(a) loans, which went to two existing businesses seeking to expand, funding them took a year.
“The difference in processing time between a Preferred Lending Program lender and a non-PLP lender has grown to months,” he said, “and effectively acts as a barrier to a new lender entering the SBA marketplace.”
By contrast, he said, the 504 program loans appear to be treated the same regardless of which lender is issuing them.
“If Congress and the SBA were to make it easier for credit unions to participate in these programs, small businesses throughout the nation will have greater access to capital at a time when it is needed most,” he testified.
Marquette said Congress should pass H.R. 4191, which would require the SBA to streamline its processes and create a program to reach out and provide assistance to credit unions to increase their participation in the SBA small business loan program.
“It was eye opening for them,” Martinez said of the House committee. “They want to help small biz and credit unions are perfect source for them to do that.”