Credit Unions Helped Save Small Business

It may not have been the most high-profile story out of the massive public-private response to the COVID-19 pandemic, but nearly 850 credit union lenders stepped up and processed hundreds of thousands of loans worth billions of dollars to assist their small business members over the course of the Paycheck Protection Program’s run. In fact, credit unions were the second largest type of lender segment to participate in the PPP.

When Congress passed the CARES Act, federally-insured credit union lenders were able to become PPP lenders via an expedited application process. That provision enabled credit union lenders to quickly begin processing loans for their members in April 2020, when the economic impact of the pandemic was uncertain, with projections being made of severe unemployment and a recession or perhaps even a depression.

Before the pandemic hit, one of the goals of the U.S. Small Business Administration (SBA) was to increase awareness about its low- or no-cost services available to the nation’s 30 million small businesses. The oft-stated goal was to keep the SBA from being the best kept secret in the federal government for small business.

In normal times, small businesses need access to capital to grow and expand. One way of expanding access to capital for small businesses is to increase the number of lenders participating in the SBA’s loan guarantee programs. Loan guarantee programs provide lenders with a federally-backed guarantee on a portion of a small business loan in the event it defaults. The guarantees help lenders extend capital to qualified small businesses with reasonable terms and conditions.

As part of this effort, the SBA partners with the NCUA and credit union trade associations to engage credit unions on small business lending. An April 2019 memorandum of understanding between the two federal agencies – as well as ongoing training sessions – are meant to spur discussion and help credit unions provide more value to their small business members.

Origination for PPP loans ended on May 31, 2021 and PPP fully transitioned to the forgiveness-only portion as of July 1. Credit union lenders are now focused on getting their members’ loans forgiven and servicing any loans that may remain on the books. Although PPP has come to a close, there are several options for credit union lenders considering SBA loans as part of a service offering in the future.

Just prior to the pandemic, only about 200 credit unions participated in SBA loan guaranty programs. As evidenced by the industry’s response to COVID-19, more credit unions have the capacity to serve more small business members going forward. By providing access to SBA loans, credit unions can help small businesses fully recover from the pandemic and position themselves for success. Moreover, the SBA-guaranteed portion of a small business loan (typical SBA 7(a) business loans guarantee 75% of the loan amount) does not count against the 12.25% Member Business Loan (MBL) cap for credit unions.

The COVID-19 pandemic changed the fates of both the SBA and credit unions. What didn’t change was credit unions’ commitment to member service and the SBA’s mission to start, grow and expand small businesses across the country. Together, credit unions and the SBA can continue their work to increase opportunities for small businesses and help them thrive in communities throughout the United States.

Bill Briggs is an industry expert with BB Advisory based in Washington, D.C., and recently served as the acting associate administrator for the SBA’s Office of Capital Access. He oversaw the launch of the most recent round of the Paycheck Protection Program and served as the SBA’s liaison to financial institutions.

Robert Flock is a former Director of Advocacy for CUNA in Washington, D.C., where he served from 2017 to 2021.