The American Bankers Association is chipping away at the Small Business Bill to protect the entrenched interests in Commercial Banking.
One amendment to the bill would allow credit unions to move more aggressively into this market. Here is the ABA rooting its members on:
Credit unions were given a tax exemption to serve people of modest means, not to aggressively go after business loans. If you are concerned about the expansion on unfair credit union competition in business lending, we need to you write your Senators immediatelyand ask them to oppose the Udall credit union business lending amendment.
The bill is a sound bill. It provides a relatively small amount of capital to go to financial institutions that will increase Small Business Lending. The current state of affairs in the industry is that there are some giant banks that do Small Business Lending in a cookie cutter way and this limits lending on character and capability and instead directs money to only those small businesses that meet strict underwriting guidelines that are primarily based on long-established trends. This is fine if that is the business model they want. Then you have many smaller banks that are hamstrung by credit problems created by over exposing themselves to builders and commercial real estate loans. They have limited capital and are being directed in many cases to concentrate on reducing risk. This is also OK. What we need is new lenders that have adequate capital, a clean enough balance sheet, and a willingness to do judgmental lending based on their knowledge of the local business conditions and the owner operators of the businesses. This bill addresses just those issues in a modest way.
Maybe credit unions are not the very best vehicle to do this. But the money is not directed to credit unions. Any qualifying bank can access the funds and make the loans. In a time of economic stagnation, all banks should welcome any lender that will improve the economy and create jobs. This may help right some of those sorry loans currently on the books. So by taking a protectionist stance, the ABA serves its constituency and not the general economy.
Banks have an inherent advantage over credit unions in regards to business lending. They have market share, expertise, systems and branding. If they cannot compete with those advantages, they do not deserve to win.