Credit unions could make more loans if the Small Business Administration streamlines its loan approval and evaluation processes and Congress raises the cap on member business loans, Corning FCU President/CEO Gary Grinnell told a House panel.
Grinnell, testifying on behalf of NAFCU, told the House Small Business Committee during an Oct. 26 hearing, that the SBA should compare the default rate of loans made by credit unions with financial institutions that have similar loan portfolios.
"The blending of all lenders with varying portfolios to arrive at a score dilutes the true picture as one cannot compare a small SBA unsecured working capital line of credit with a large SBA loan secured with commercial real estate. Clearly, the two loans are different and should have different evaluation processes. If this evaluation process is not changed, it may eventually eliminate all small loans from lenders' portfolios," Grinnell said.
He also said that because many credit unions aren't preferred SBA lenders, their loan applications are sent out of the region, and those evaluating them don't have a handle on the local economy. In addition, this adds time to the application process and may discourage some credit unions from making those kinds of loans.
Grinnell said the SBA's approval process on some loans is three to four weeks, and if done closer to credit unions, it could be accomplished in a couple of days.
Grinnell, whose Corning, N.Y.-based CU has assets of $896 million, also said CUs would make more loans if Congress passed two laws.
He urged lawmakers to pass legislation that would raise the cap on member business loans from 12.25% of assets to 27.5%.
He also encouraged them to pass legislation that would exempt any SBA loan from the meaning of member business loans, as defined by the Federal Credit Union Act.
Committee Chairman Sam Graves (R-Mo.) said while the SBA's activities have increased, the panel is seeking to find out how much of a dent they will make in the job-starved economy.
"SBA statistics show that volume in its financing programs has increased. These efforts have been supplemented by promises from banks to rise lending to small businesses. It remains an open question whether these efforts are sufficient to provide necessary funds for small businesses to expand and create jobs," he said in his opening statement.
Rep. Nydia Velazquez (D-N.Y.), the panel's top Democrat, asked Small Business Administration Administrator Karen Mills what the agency can do to help more credit unions make business loans.
Mills replied that "we love credit unions," and they currently make about 10% of all SBA loans. But she said they are always looking for ways to increase that number and they regularly meet with lenders to try to make it easier for them to work with the agency.
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