Credit Union Small Business Loan Applications Decline

Credit unions are working to help business members whose Small Business Administration loans are on hold because of the federal government shutdown. But if the shutdown drags on, it may slow down the momentum of strong growth in small business lending, a major player in the health of the economy.

Because of the ongoing government shutdown, SBA offices around the country are closed. But the agency is processing disaster relief loans for individuals and small businesses that suffered major losses from last year’s natural disasters in Florida, California and other states.

Credit unions approved 40.1% of small business loan applications in December, tying an all-time low figure, down one-tenth of a percentage from November, according to the Biz2Credit Index monthly report, which reviews more than 1,000 small business credit applications made via an online lending platform.

What more, business loan approval rates dropped three-tenths of a percent at regional and community banks in December 2018, and small bank approvals slipped below the half-way mark to 49.9% following the month of November when 50.2% were approved.

However, the December approval percentage for big banks with assets of $10 billion and up increased one-tenth of a percent from October’s figure of 26.9% to 27%, according to Biz2Credit’s monthly report.

“With the SBA closed, there is now a backlog of companies awaiting funding primarily from small banks,” Rohit Arora said, who is CEO of the New York-based Biz2Credit. “At this point, it will take months for banks that process SBA loans to recover from this jam and restore the flow capital to small businesses.”

More importantly, if SBA lending stalls much longer, it will negatively affect small companies looking for funding and slow down the strong growth seen in this part of the economy, he said.

Credit unions have become an increasingly important lender to small business. CUNA reported that from 2008 to 2016, credit unions’ small business lending has doubled to more than $60 billion, while small business lending by banks has fallen by $100 billion in the same years.

While the stalemate of the government shutdown hit the three-week mark, credit unions that offer SBA loans also have been rolling up their sleeves to help small business members, just as they have been stepping up efforts to support furloughed federal employees.

Jill Faucher, senior vice president of marketing for the $3 billion California Credit Union in Glendale, said the credit union’s business lending team is working with small business members who may be in a quandary regarding SBA loans.

“We’re confident we can help them,” Faucher said. “We’re committed to figuring out what works for them.”

In addition to determining if small business owners would be eligible for the credit union’s conventional financing products, Faucher said the credit union also has the option of assisting small business members to tap the resources and programs available at the state of California.

Nevertheless, the National Association of Government Guaranteed Lenders in Stillwater, Okla., has advised financial institutions to take into consideration a few things before offering bridge or interim loans for businesses whose SBA loans are in limbo.

According to the NAGGL, bridge or interim loans are permitted but only under limited circumstances and are made wholly at the lender’s risk.

SBA “probably would allow” lenders to provide an interim loan during the shutdown with 7(a) guaranteed loans as long as the 7(a) loan is processed under the lender’s delegated preferred lender program authority, and that the 7(a) loan number is obtained within 90 days of the lender’s approval of the interim loan, according to NAGGL.

However, construction loans and all loans that will be processed on a non-delegated basis through the Loan Guaranty Procession Center have different requirements and will not be considered as bridge or interim loans by the SBA, NAGGL said.

Although loans that already have an SBA loan number can be disbursed to small business owners, any loan increases are treated in the same manner as new loans, which mean they cannot be processed because of the shutdown, according to the NAGGL.