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Credit unions could get lending boost from proposed law aimed to help small business


Small businesses that can’t get loans at cash-crunched community banks might soon have a good reason to do their shopping at credit unions.

If a federal law is approved this month, it will empower credit unions to lend more than double what they can now. By law, the amount of lending credit unions are allowed to make is locked at 12.5 percent of their total assets. If the proposed Small Business Lending Enhancement Act is approved, that limit would be increased to 27.5 percent.

Sen. Kirsten E. Gillibrand, D-N.Y., is among a large bipartisan contingent supporting the bill, which is set to be voted on in both houses this month. During a conference call Tuesday, Mrs. Gillibrand outlined how credit unions are set to play a critical role for small businesses in this state at a time when community banks still are hobbled by the recession. Statewide, passage of the bill could boost lending for credit unions by about $1 billion and create more than 11,000 jobs, according to the Credit Union National Association. The north country’s 20 credit unions, which have some 140,000 members, could stand to increase lending by more than $2 million.

The 12.5 percent lending cap on credit unions was approved by Congress in 1998; credit unions had no lending cap before that. Under the new proposal, increases would be phased in to up to 27.5 percent based on the institution’s total assets and membership numbers.

Mrs. Gillibrand, who has backed the proposed law for three years, said that credit unions are uniquely positioned to assist small businesses in ways community banks can’t. Credit unions are nonprofit institutions that are owned by their members; community banks, by contrast, are for-profit institutions, many of which have curtailed their lending since the recession because they are less willing to take risks.

“As more people move their money from the stock market to savings accounts, credit unions have more cash on hand to lend,” she said. “They’re not trying to make money, but to get credit for their members. Most businesses are credit union customers because they couldn’t get a loan from a community bank. They’re not meeting lending requirements, or community banks don’t have the credit to lend.”

By freeing up extra lending capacity, passage of the bill would be a boon for credit unions in the north country that already are bastions for small business clients, like Northern Federal Credit Union. With six locations in Jefferson, Lewis and St. Lawrence counties, the credit union has 26,000 members — 1,000 of which are small businesses. It also has agreements with 200 large employer groups, including 25 school districts in the tri-county area.

Northern Federal will launch a commercial lending program to serve small businesses by the second quarter of 2013. That move that was driven by feedback from its small-business clients that are seeking loans, said Daniel W. St. Hilaire, president and CEO. He said the proposed bill in Congress would enable the credit union, which has about $190 million in assets, to provide more loans to small businesses.

“Many of them throughout the year have approached us with a request to provide them with more business services,” he said.

Mr. St. Hilaire said small businesses have had a lingering need for loans ever since the financial crisis struck in late 2007. But they’ve been largely underserved by community banks, which are taking fewer risks on loans. Lending by credit unions in 2011 increased by about 45 percent, while community banks decreased lending by 15 percent, according to the National Credit Union Administration and Federal Deposit Insurance Corp.

United Neighbors Federal Credit Union, which is a certified lender for low-income families, plans to launch a commercial lending program for small businesses in the next month. The small credit union, with locations in Watertown and Deferiet, has 20 member businesses, mainly in Jefferson County. Because it has only $5 million in assets, the credit union would benefit greatly from the proposed change, CEO Robert J. Foster said.

“We’re hoping the legislation goes through, because our lending assets would grow,” he said. “We’re going to focus on lending to our current businesses and startups.”

He said the influx in business activity at credit unions has been a widespread trend because of the low-interest loans and other programs they offer.

“We can offer things banks can’t because we’re here not to make a profit, but to put money in our members’ pockets,” he said.

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