Credit unions, community banks vie for small businesses’ business
not-for-proft entities would like to lend more to entrepreneurs; banks say that would be unfair
Small-business owners struggling to find credit in this economy might do a double take: Credit unions and community banks are fighting over them in Congress.
Credit union officials want Congress to raise the cap on the small-business loans they can make — a move that has community bankers crying foul.
The U.S. Senate is expected to vote on the measure as part of a larger bill, the Small Business Lending Fund Act (HR 5297), after lawmakers return from the July Fourth break.
The law currently caps business loans by a credit union at 12.25 percent of a credit union’s assets. The legislation would increase that to 27.5 percent.
Winter Prosapio, director of public affairs for the Texas Credit Union League, predicted that the share of business lending by Texas credit unions might double from 1 percent to 2 percent if the legislation becomes law.
“We want to be able to make loans to our members who are starting businesses,” Prosapio said. “We’re not going to take over.”
Stephen Scurlock, executive vice president of the Independent Bankers Association of Texas, complained that credit unions are trying to carve into one of the last niches left to small banks.
“I don’t care if it’s 1 percent or 10 percent,” Scurlock said. “It’s too much.”
Scurlock said credit unions would have an unfair advantage because, as nonprofit entities, they don’t pay income tax and are not regulated in the same way.
“If they want to be banks, we’d love to have them come join us,” Scurlock said. Otherwise, he said, “it isn’t a level playing field.”
Prosapio pointed to two Austin businesses as examples of customers served by credit unions.
Azar Owalia opened Dream Bakery on Anderson Mill Road in 2005 after retiring from the University of Texas Medical Branch at Galveston.
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“It is my dream to have this bakery for a long time,” Owalia said. “But I didn’t have an opportunity until I retired.”
Owalia said she turned to a credit union — not a bank — for help with her $40,000 Small Business Administration loan because she had a 20-year relationship with the lending institution.
“They helped me a lot,” she said.
Mary Ober and her husband moved from Dallas to Austin to pursue her dream of opening Authenticity Gallery, which sells one-of-a-kind gifts made by artists.
“I was done with corporate America,” she said of her previous career.
She opened her shop on Congress Avenue in 2006 with a $225,000 SBA loan through a credit union.
“It felt more relationshiporiented,” she said. “They got what I was trying to do.”
Scurlock said credit unions have moved far beyond their original mission: “Credit unions were created to serve consumers of modest means with a common bond.” For example, many credit unions were organized around profes- Authenticity Gallery owner Mary Ober – right, with longtime customer Laurann Kanamu on Friday – opened her shop in 2006 with a $225,000 SBA loan secured through a credit union. sions like teachers or firefighters.
Scurlock said anyone can join a credit union for a small fee, regardless of whether they have something in common with the overall membership.
The Texas Association of Business, the state’s largest business lobby, has sided with credit unions.
“The need for new capital for small employers is urgent,” said Bill Hammond, associa- tion president. He said nearly half of all small businesses in the U.S. are struggling to find credit and that commercial lending has fallen 12 percent at banks.
Scurlock countered that Texas-based banks — not counting multinational banking giants — increased lending some 13 percent in 2009.
“We’ve been lending right through the recession,” Scurlock said.
Azar Owalia opened Dream Bakery in Austin in 2005 (‘It is my dream to have this bakery for a long time,’ she says) with the help of an SBA loan obtained through a credit union. ‘They helped me a lot,’ she says of the credit union, which she chose based on a long business relationship.