The recent article in American Banker on small-business lending (
The author's personal anecdotes ignore the fundamental truth of the credit union industry: The credit union tax status exists because of
Irrelevant questions about the nature of products and services from specific credit unions don't change the fact that credit unions live up to the mission given to them by Congress every day, have taken that responsibility seriously since 1937 and have no plans to stop that any time soon.
Credit unions delivered nearly $35 billion in financial benefits to communities across the country in the 12 months ending March 2024. Those benefits arise from lower rates on loans, better rates for deposits and lower and fewer fees compared to banks. This makes the credit union tax status (by far) one of the best investments the U.S. government makes, with an approximate 1,400% return on investment.
The competition, diversification and growth mentioned so fearfully in the article are a natural evolution to meet members' needs, whatever they may be. Credit unions excel at that, among many other things.
In some communities it's credit-builder or first-time homebuyer programs. Others look to focus on underserved businesses and communities.
During COVID, many credit unions launched business lending programs because owners couldn't get loans from their longtime banks.
Credit unions made Paycheck Protection Program loans in amounts much lower than the national average. The average credit union PPP loan was around $50,000, and 70% of credit union PPP loans were made to businesses with fewer than five employees.
Credit unions have, in fact, increased lending since 2019, because a worldwide pandemic means business might need additional support, and credit unions stepped in, as they always do.
Credit unions do all this with a statutory 12.25% cap of assets on member business lending, or MBL — an arbitrary limit that bankers lobbied Congress to implement in 1998.
Having a built-in business lending limit means even when credit union members want to get a loan from the credit union that has been there for them — they might not be able to. And that leaves those would-be business owners in the lurch.
In low-income areas, the challenges are even greater in finding needed support and lending. That's why low-income designated, or LID, credit unions are exempt from the MBL cap, and on average report annual commercial loan growth that is two times higher than their counterparts that are not LID designated. Currently, LID credit unions report that 12.2% of their total loans are business loans — well above the 8.7% share of total loans reported by non-LID credit unions.
Credit unions collectively reflect a market share that is less than 5% of depository institution commercial loans — whereas banks control more than 95% of the market. Contrary to the view in the op-ed, credit unions are not a meaningful threat to bank commercial lending.
A Northwest credit union announced plans this week to buy a community bank, lifting the 2024 total of such deals to 13 and putting the year on track to set a record. The all-time annual high of 16 was set in 2022.
Facing these arbitrary lending limits, credit unions are looking for opportunities to grow. At the same time, the number of banks that are closing their doors is growing, creating even more need for credit unions to step in and fill that void.
There isn't a shred of evidence to back up the article's claims that credit union business lending is somehow beyond their ability, other than claims from the very same bankers who aren't stepping up to serve those businesses.
Also absent from the article are any real solutions to get additional capital to small businesses that need it. But credit unions advocate for that ability every day and once again pick up the pieces that banks leave behind.
America's Credit Unions support bipartisan legislation that would allow additional lending to veteran-owned businesses, more affordable student loans and more, because there are gaps in those markets for-profit banks won't fill.
Community bankers are making a lot of public complaints about competition from credit unions for business loans, but last year's Conference of State Bank Supervisors Survey shows that less than 5% of community banks said a credit union was their main competitor for small-business loans. Not to mention, a Federal Reserve small-business survey showed applicants for loans through a credit union have a more positive experience than those choosing small banks and online lenders.
Credit unions not only weather tough economic times, but they also lend more (often to the same communities banks pull back from).
Credit unions are as diverse as the communities they serve, and that's a great thing. The industry is known to serve a different class of small businesses than banks do, including Black-owned businesses who seek out their credit union for loans, better rates and a satisfactory experience.
The author's own beliefs and his experience doesn't get to dictate how the credit union industry serves its members.
Any resemblance between credit unions and banks is merely the nature of the products they offer. Credit unions don't emulate banks, function like banks nor do they serve consumers like banks.
They focus on people, not profits. At the end of the day, finances are personal to everyone, and credit unions recognize the need to treat people with respect and give a hand during those uncertain times in life.
There's a reason Congress hasn't touched the credit union tax status for 90 years. That's because it consistently benefits members and communities across the country. Credit unions are the best financial partner for small businesses — in good economic times and bad.
