110th CONGRESS, LEGISLATIVE ISSUES A - Z

ISSUE: On March 29, 2007, Rep. Nydia Velazquez (D-NY), Chairwoman of the House Small Business Committee, introduced the Credit Union Small Business Lending Act, H.R. 1849. Currently, less than 2% of all U.S. credit unions offer Small Business Administration (SBA) loans to their members. While the number of credit unions participating in the 7(a) program his increased steadily since 2003, SBA guaranteed loans represented only a small portion — 2.6% — of all business lending to credit union members in 2006. H.R. 1849 would exempt the non-guaranteed portion of SBA’s 7(a) loans from counting against credit unions' small-business lending cap. Currently, only the guaranteed portion of 7(a) loans does not count against the cap for credit unions.

Rep. Velazquez’ bill consists of four provisions that are intended to facilitate increased credit union participation in SBA lending programs.

1. Expanded MBL Cap Exception: Under the MBL provisions of the Federal Credit Union Act (FCUA) loans made by a credit union to members for business purposes under the SBA 7(a) Loan Guarantee program or any other government loan guarantee or insurance program can be excluded in calculating the credit union’s total volume of business loans under the 12.25 MBL cap. Currently only the guaranteed portion of a loan (generally 75 – 80% of the loan amount) is excluded from the cap. The provision would exempt the entire loan amount from the cap, providing credit unions with additional capacity to make non-SBA business loans.
2. Credit Union Outreach/Simplified Approval: The provision directs the SBA Administrator to establish an outreach program to encourage credit union participation in the 7(a) program. At a minimum, the Administrator is directed to establish a simplified 7(a) application process for credit unions. Currently, credit unions are required to submit extensive documentation that is sent to SBA Washington headquarters for approval. The process can be burdensome and take many months. Banks currently have a simplified application process that can be approved in several days by SBA field offices. The intent would be to equalize the application process between banks and credit unions.
3. Special Loan Guarantee Program for Underserved Areas: The provision directs the SBA Administrator to establish a special program for credit unions under the 7(a) program that would provide an 85% loan guarantee on loans of up to $250,000 made to members who reside in an underserved area or to members seeking to start or expand a business located in an underserved area. The bill incorporates the expanded definition for an “underserved area” from CURIA, H.R 1537.
4. Expanded Exception from Lending Restrictions: The provision clarifies existing law governing credit union participation in the SBA’s 504 Certified Development Companies loan program, and other government guarantee loan programs. Currently, credit unions may make loans with interest rates, maturities and other terms or conditions that are otherwise prohibited for credit unions if these loan terms or conditions are specified in the statute governing the government loan program. Because the terms of SBA’s 504 program are specified in regulation, and not in statute, participating credit unions may risk non-compliance with NCUA lending rules. The provision clarifies that credit unions may make government guaranteed loans under terms specified in both the statute and application regulations governing the loan guarantee program.

CUNA POSITION: CUNA supports efforts to increase credit union participation under SBA lending programs by providing more small business access to capital.

OPPOSING VIEWS: The bank lobby is opposed to the bill, arguing that it would free up capital for credit unions to engage in unfettered commercial lending.

STATUS/OUTLOOK: CUNA testified on March 8, 2007, in the House Small Business Committee that red tape and administrative fees had hampered credit unions from participating in SBA lending programs. Rep. Velazquez’s introduction of H.R. 1849 was in response to that testimony.

CONTACT: Ryan Donovan, 202-508-6750, rdonovan@cuna.coop.

Related Documents:

March 8, 2007 Testimony: House Small Business Committee

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