Small business owners create most new jobs in the United States, but they’re struggling to hire more people, in part because of a lack of access to credit. Proposed legislation to expand credit unions’ ability to lend to their members could help, according to a report released by the R Street Institute and Small Business Majority.
The report reviews challenges small businesses face in obtaining credit and outlines potential benefits the bipartisan legislation could have on access to much-needed loans. Proposals currently before Congress would allow credit unions to lend as much as 27.5 percent of their assets, up from 12.25 percent, and would free up $13 billion in capital and create 140,000 jobs, according to the paper.
“The current restrictions on credit union business lending are anti-small business and anti-jobs. Simple regulatory relief for credit unions will create thousands of new jobs at no cost to taxpayers,” said Eli Lehrer, president of the R Street Institute and author of the paper. “Expanded credit union lending to small businesses is exactly the medicine the economy needs right now.”
The vast majority of small business owners agree credit availability is a problem, according to opinion poll data released by Small Business Majority. Six in 10 small business owners polled said it’s harder to get a loan now than it was four years ago. In fact, 52 percent of those surveyed said they turned to credit cards to finance their business.
By a two to one ratio, small businesses support increasing credit unions’ member business lending cap to 27.5 percent.
“Loans that will help small businesses grow and create jobs are harder and harder to come by,” said John Arensmeyer, founder and CEO of Small Business Majority. “With banks’ lending portfolios shrinking and small businesses’ dependence on credit cards growing, lawmakers need to look for smart ways to revamp the credit landscape.”
Loan Activity Below 2007 Level
The report notes measures of national loan volume compiled by the Federal Reserve Bank of Cleveland show loans typically going to small businesses (loans less than $1 million) have not yet recovered to the pre-recession levels of 2007.
“In all, researchers at Pepperdine University found only 17 percent of enterprises seeking loans under $5 million actually secured them. The news was even more grim for small businesses: only 6 percent of investments funded loans of less than $1 million, often considered the metric for ‘small’ business lending,” wrote Lehrer.
“Since the average credit union loan is quite small—$219,000—credit union lending will fill the exact voids where credit from other sources is in shortest supply,” Lehrer wrote.”
R.J. Lehmann ([email protected] ) is public affairs directors for the R Street Institute in Washington, DC.
“Small business credit still a problem: Expanding credit union member authority a much-needed first step,” R Street Institute and Small Business Majority”: http://rstreet.org/policy-study/small-business-credit-still-a-problem