WASHINGTON – Credit union small business lending received a monumental boost as the Small Business Administration has decided all credit unions can participate in the Small Business Administration's 7(a) loan program, a move NAFCU, CUNA and NCUA have been asking for for some time. In a legal opinion letter issued Feb. 14, SBA General Counsel David Javdan wrote that any credit union can participate in SBA's 7(a) loan program. In the letter addressed to CUNA President and CEO Dan Mica and NAFCU President and CEO Fred Becker, Javdan wrote, "After careful and considered review of the relevant law, regulations and judicial opinions, I am hereby advising you that it is the official position of the General Counsel that no such restrictions (on the types of credit unions that can participate as lenders in the 7(a) program) exist." While SBA Press Office Director Mike Stamler explained that fields of membership were previously viewed as "not open enough" and credit unions can now participate so long as they do not discriminate within their FOM, he would not comment on why it took SBA 10 years to reach this decision. Approximately 10 years ago, SBA decided that only credit unions with membership based on geography were eligible to participate in the 7(a) lending program. Currently, about 75 community chartered credit unions are SBA lenders, with some of those inactive, according to CUNA. In making the long-awaited credit union announcement, SBA did not discuss its 7(a) lending guarantee cap of $500,000, which was lowered from $1 million after Congress failed to approve an appropriations bill before the end of the fiscal year. By recently passing an omnibus spending package, Congress has funded SBA's fiscal year 2003 7(a) lending at $8.2 billion. NCUA Board Member Deborah Matz, who serves as the agency's liaison to SBA, commented on the decision, "I take my hat off to Administrator (Hector) Barreto. He studied the issue. He said he would do the right thing and they did." Becker applauded the NCUA Board members for their efforts on the issue. The same day the letter was announced, he noted, a NAFCU member contacted him looking for a copy because the credit union was interested in getting the ball rolling as soon as possible. Credit union leaders expect a gradual pick up in credit union small business lending in general between this SBA decision and a proposal due out of NCUA at the March board meeting. The news was very important for credit unions, which are capped by statute at 12.25% of assets for member business lending purposes. Under the new legal interpretation, credit unions can apply to have their loans backed by the SBA and that portion will not count towards credit unions' member business lending cap. "SBA's legal interpretation will serve to further NCUA's Access Across America initiative even as it enhances the success of its 7(a) loan program," NCUA Chairman Dennis Dollar remarked. "NCUA believes that credit union participation in the 7(a) loan program will not only expand the reach of that valuable program, but the loan guarantees built into the 7(a) program will be a risk management tool which will allow more credit unions to positively serve their members and impact their communities through being a conduit for start-up business capital." NCUA Vice Chair JoAnn Johnson, who has been working on expanding NCUA's regulations on business lending, observed, "I think people are seeing that small business is the heartbeat of America." She added that the new interpretation will allow credit unions to play a key role in bolstering the nation's sagged economy. CUNA General Counsel Eric Richard agreed that the decision could not have come at a better time for credit unions. He emphasized the need for new growth areas because of the current stagnation of consumer lending and the expectation that mortgage lending will begin to slow soon. Richard added that the White House had reviewed this interpretation and the credit unions and small businesses enjoy support at all levels of the administration. CUNA representatives also pointed to credit unions' record of serving consumers sometimes overlooked by other lenders. "Today, more than 25 million small businesses operate in the U.S., creating more than 70% of the nation's new jobs. Credit unions fit right into the niche," Mica commented. "Those credit unions that have been active in lending to small business have generally been targeted toward the smaller end of the business loan market-typically, under $100,000." It was this key fact that was the turning point of SBA's decision, according to Stamler. "Expanding the number of credit unions that make SBA-backed loans helps us advance our goal in reaching out to more small businesses," he commented. SBA stated earlier this year that its goal was to back more and more smaller business loans. According to SBA, as many as 1,500 of credit unions are likely to join the network of SBA lenders, representing a potential 30% increase in the overall number of institutions offering these federal government-backed loans. Stamler pointed out that credit unions have more than 80 million members and they are all current or potential small business owners. "Building on our existing network of lenders, we can reach more communities, a greater number of entrepreneurs and a more diverse pool of prospective and existing small business men and women. My first priority is to reach as many small businesses as possible. Expanding the number of lending partners we participate with is a good way to accomplish that," SBA's Barreto said. CUNA and NAFCU said they have been in contact with SBA, sharing information with them, on a daily basis for the last few weeks. Both groups have said that they are looking for ways to help their membership utilize this new access to SBA guarantees, and should be rolling out initiatives in the near future. SBA Administrator Barreto will be speaking at CUNA's GAC this month and NAFCU plans to hold an education session on SBA lending during its Annual Conference in July. "Credit unions are very excited to have this opportunity, and commend SBA Administrator Hector Barreto and the SBA at large for making it come about. While credit unions are eager to get involved in this program, we all acknowledge that it will take credit unions a while to ramp up their involvement. Nevertheless, I personally have heard across the nation the need for credit union involvement to help meet the needs of small business-which, to date, has been looking for more assistance from some other quarter," Mica said. Becker echoed, "Credit unions have worked long and hard for this. NAFCU is extremely gratified at this outcome and greatly appreciates the time and effort devoted to this matter by SBA Administrator Hector Barreto, NAFCU's members, the National Credit Union Administration, as well as numerous members of Congress who have also pressed SBA to open the program to all credit unions." Just recently, Congresswoman Stephanie Tubbs Jones made a statement on the House floor to this effect. NCUA Chairman Dollar highlighted the regulator's commitment to expand credit union business lending. "NCUA stands ready to continue to work closely with the SBA to make sure this decision works effectively for both agencies, the credit unions who choose to participate and, most importantly, the communities who will be positively impacted by new jobs and economic development through expanded avenues of investment in small business," he said. Of course, not everyone is happy with SBA's decision. American Bankers Association Executive Director of Congressional Relations Floyd Stoner blasted the decision, stating, "Now credit unions have been given the opportunity to apply for a tax-funded program although they pay no taxes. This is another attempt by credit unions to take advantage of the same privileges and reap the same benefits without the same responsibilities that tax-paying banks have. It is ironic that taxpayer funds will be used to expand the reach of tax-exempt credit unions at the expense of all taxpayers-including banks." Since 1953, SBA lenders have helped provide more than $175 billion dollars in financing to small businesses. [email protected]