According to the WCUL, the state’s credit unions increased lending to small businesses by 8.3 percent during 2010. Bank lending to businesses in Wisconsin, meanwhile, decreased last year, though by some measures just 3 percent. (See “Parsing the bank vs credit union business loan numbers,” page 43.)
Credit union backers say it’s time to give their industry credit for catering to the lending needs of small businesses. “What we are talking about here is helping ‘main street’ businesses – not making loans to the big, corporate conglomerates,” says Christine Henzig, WCUL director of communications.
Having worked in banking before moving to the credit union side, Steve Nothem, president of Premier Financial Credit Union in New Holstein, says his directive at one bank was to focus on loans greater than $1 million. At his credit union, he says, there are no business loans greater than $500,000, and most are less than $120,000.
Wisconsin credit unions’ average outstanding member business loan, or MBL, stood at $184,840 in late 2010. Nationally, the average-sized MBL was $249,000.
Nothem says his credit union’s loans usually are to small businesses such as hair salons and bakeries. “For every Walmart, there are 1,000 mom-and-pop businesses in this country, and credit unions are more than happy to handle the needs of those,” he says. “Credit unions are lending because the opportunity is there.”
There are plenty of banks focused on the needs of small business, counters Kurt Bauer, president of the Wisconsin Bankers Association. “I think it’s fair to say that the bread-and-butter product for a community bank in the state of Wisconsin is small business lending,” he says.
As for the slim percentage drop in business lending by banks in Wisconsin last year, Bauer sees it as a result of the economy. During recessions, he says, consumer demand is down, so fewer businesses are expanding.
Jeff Kleiman, president of Union State Bank in Kewaunee, says his bank experienced a small drop in business lending last year, mainly due to the slow economy. He adds that his bank is focused on small businesses, with many loans in the $100,000 to $150,000 range. “We have the credit unions competing with us on the small business side,” he says. “The large mega-banks don’t compete as much for the lending to small business.”
Currently, federal law places a cap on business lending by credit unions at 12.25 percent of an institution’s assets. The credit union industry would like to see the U.S. Congress raise the cap higher. A higher cap would make it more attractive for more credit unions to start or expand business lending programs. “With small business growth being so important to our nation’s economy, it’s vital that we free up the ability of credit unions to make loans to small businesses,” says Henzig.
Bauer says it’s wrong to cast a short-term blip in lending as symptomatic of a systemic, unmet need. “During a recession, you will typically see lower demand for loans,” Bauer says. “What we saw was that there were lines of credit that were not being tapped.”
Some Wisconsin banks did manage to grow business lending last year. At First National Bank Fox Valley based in Neenah, business loans were up about 13 percent, says President Peter Prickett. He credits the bump to the relative economic strength of the Fox Valley. “There are a lot of dynamics [in statewide lending trends],” Prickett says. “Individual markets are different. The Fox Valley has been a little better than most.”
The underwriting standards at credit unions versus banks don’t differ much, says Nothem. To get an MBL, however, it’s typical that a business has to become a member and start a small savings account.
Prickett says that the oversight for lending by banks and credit unions really isn’t much different, though it involves different sets of regulators. Ultimately, he says, both types of institutions rely on business lending to thrive. “I wouldn’t bash one [type of institution] against the other,” he says. “We all need the loan business.”