small business loan

By James Walter

Credit unions have become an important source of financing for small businesses during the recession and recovery. However, proposed changes to the tax code and anti-credit union voices could be putting credit unions’ ability to lend to small businesses at risk.

Recently, Senate Financial Chairman Max Baucus (D-MT) and Ranking Member Orin Hatch (R-UT) wrote a “Dear Colleague” letter to members of the Senate asking them to advocate for certain tax exemptions while getting rid of others. The Senators’ letter stated, “We believe it is important to start with a ‘blank slate,’” wherein the tax code would be exemption free.” Some legislators have proposed changes that would allow credit unions to make even more loans. Currently credit unions are hindered by a “member business lending” cap which limits the percentage of assets they can issue as business loans. In May 2013, Sen. Mark Udall (D-CO) introduced the Small Business Lending Enhancement Act of 2013, which would raise the cap from 12.25 percent to 27.5 percent, as measured by percentage of assets.

Both of these items could greatly impact credit unions and their operations, in opposite ways of course.

Losing tax-exempt status is obviously the “doomsday” scenario, but it brings home just how important credit unions are to the health of our economy. Credit union membership swelled during the recession, and credit unions took up some of the slack in issuing more commercial loans. In fact, the Credit Union Times reported in 2012 that credit unions have increased their business loans by 53 percent since 2006.

While there is a valid discussion to be had regarding how much lending a nonprofit organization should be able to do, the fact remains that small businesses’ capital needs are not being met. If tax policy is used strategically, more credit unions would be able to provide more low-cost capital. Tax policy can be amended effectively and used to make a real difference for America’s small businesses, but changes should certainly not come at their expense.

If you’re a small business owner or an individual who relies upon credit union services, we urge you to contact your federal representatives to tell them you support the Small Business Lending Enhancement Act to help give small business owners the capital they need to move forward and create jobs.

James Walter is the CEO and co-founder of Finagraph (formerly BBC Easy) – an automated financial intelligence tool that provides advanced analytics and data verification to financial institutions and their commercial lending customers.