WASHINGTON (12/16/11)--While descrying the "deep freeze" in credit for small businesses as one of the most damaging consequences of the U.S. financial meltdown to the country's economy, the Progressive Policy Institute (PPI) offers a "simple solution" for providing smaller firms with greater access to credit: allowing credit unions to offer more small business loans.
In its latest policy memo, entitled "The Credit Gap: Easing the Squeeze on the Smallest Businesses" and written by Brian Martin, an independent policy analyst, PPI notes that as the financial system all but shut down in 2007-2008, "millions of small business owners across America found themselves unable to get the credit they desperately needed to run their businesses, let alone expand." The result, the analysis says, was that thousands of firms that may have otherwise flourished were pushed into bankruptcy or closure, with thousands of Americans losing their jobs.
The policy memo notes that while the crisis of credit availability is starting to ease for some small businesses, the smallest--those with fewer than 50 workers--are "still at risk of being left behind."
"These smaller businesses account for nearly one in three private-sector jobs in America, yet they are much less likely to be able to get the credit they need to stay in business or grow," Martin writes.
The PPI memo goes on to call increased member business lending (MBL) authority the "easiest and most obvious" public policy option for expanding credit to those smaller businesses. Credit unions, he adds, are "some of the lenders who are already the most likely to be working with smaller businesses" as their members.
Recalling the history of the current MBL cap of 12.25% of assets, set in 1998 as part of legislation enacted in response to a Supreme Court ruling that would have tightened credit union membership rules, the report says that cap "was not considered a major provision of the legislation at the time and is now an arbitrary limit on the ability of credit unions to help smaller businesses make the leap toward growth."
The PPI report says that increasing the MBL cap to 27.5% of assets, as proposed by legislation in both the U.S. House and Senate and strongly backed by the Credit Union National Association, could substantially benefit smaller business owners and in turn the economy at large.
"It would enable credit unions to extend more credit to their existing members who are small business owners interested in expansion or who are just starting out a new venture, while the current low cap may block these opportunities for growth."
The PPI statement joins an increasing chorus of support for an MBL increase, including from other think-tanks, like the Heartland Institute in Chicago, bi-partisan backing on Capitol Hill, and support from small business groups.