A bipartisan consensus of economists has told us repeatedly that one of the keys to creating jobs is increasing small businesses' access to loans. Yet while the economy is inching toward recovery, large and small banks are still reluctant or unable to lend. In every state in the nation, credit unions are ready to make responsible loans. But federal law currently prohibits them from lending more than 12.25% of their total assets. It's an arbitrary and outmoded cap that's unnecessarily holding our economy back.
We need to remove that barrier to capital and allow credit unions to help small businesses grow. That's why last year, I introduced bipartisan legislation called the Small Business Lending Enhancement Act to allow credit unions to ramp up their small business lending.
Credit unions have proven to be responsible lenders that can provide capital for worthy small business owners who need loans to make investments in inventory, expand their businesses and ultimately hire new workers. It's estimated that our bill could create more than 100,000 jobs within its first year of enactment, all without costing taxpayers a dime.
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It's a simple solution, and we've been working with all of the stakeholders to make sure the legislation meets everyone's needs. After introducing it last year, I heard from several banks with concerns about allowing credit unions to increase their small business loan portfolios. So we all worked with the Treasury Department and the National Credit Union Administration to craft a new compromise, which I have filed as an amendment to the Small Business Jobs Act. The Senate will resume debating that bill later this month.
To be eligible under our new proposal, a credit union must:
Be well-capitalized.
Have offered small business loans for at least the last five years.
Prove it has sound underwriting and strong historical management practices.
Show it has been running up against their previous loan cap.
If credit unions meet all of those strict criteria, then they can go to the NCUA and apply to increase their small business lending. If they're approved, their cap will gradually increase from the current 12.25% to a maximum of 27.5%. That transition will be overseen by regulators to ensure it's done in a measured and prudent fashion.
I'm confident this is a sound and sure-fire way to grow our economy because we've seen the benefits of credit unions working with small businesses in my home state of Colorado.
In the last year, I've talked to small business owners from across Colorado, who say we need to give them more options to obtain capital. Some, like entrepreneurs Stacy Hamon and Lisa Herman, have told me great success stories about how they were able to get loans from credit unions when traditional banks were unable to help them. Stacy relied on a credit union loan to open the 1st Street Salon in Thornton. In Denver, Lisa worked with her credit union loan to expand her Happy Cakes Bakeshop.
When I visited Stacy's salon earlier this year, she had plenty of business and had even hired more workers. And despite the troubled economy, Lisa's business has blossomed, with retail and catering sales increasing to the point that she needed to expand and move into a new shop.
In this economic climate we can't afford to turn away entrepreneurs like Stacy and Lisa. We should remove these unnecessary restrictions that are holding us back, and allow credit unions to help our nation's small businesses set our country on a path toward job growth and further prosperity.
Sen. Mark Udall is a Democrat representing Colorado.
He can be reached at 202-224-5941 or [email protected]
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