Proposed Credit Union Small Business Jobs Creation Act – Will it Help?

I read this article recently about the Credit Union Small Business Jobs Creation Act, H.R. 688, which would raise the cap on loans credit unions can make to their small business members from the current 12.25 % of assets to 27.5 % of assets. Sounds like good news for small business owners, right?

While the article applauds the efforts, as do I, I wouldn’t give it a standing ovation. Rather, it is more along the lines of a polite Masters Golf Clap. While I agree that anything the government can do to make progress and loosen the regulatory vice grip on banks and credit unions, they absolutely should move forward in doing. However, the numbers represented in the article do not tell the whole story.

For example: According to the article, there are 140 credit unions bumping into the business lending “cap.” My guess (from the government support) would be that those are probably on the east and west coasts. There are another 400 that are either somewhat near or not even close to the cap. Therefore, raising the cap isn’t going to push a credit union with a loan ratio of 4% up to the cap of 27.5%. So, while raising the cap to 27.5% and also getting credit unions to lend up to this number, would put another $13 billion on the street, the truth is – it won’t happen.

On the bright side, it may free up a few additional billion to small businesses, which again deserves applause. But small businesses are so under served that a couple billion over the course of a year is really like buying a pack of energy efficient light bulbs for your house and expecting to solve the world’s energy problems.