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Credit Unions Would Lend More if the Politicians Would Allow It

Small-business lending is a hot-button issue given recent data showing that banks in the fourth quarter improved their rate of approval for loans under $1 million for the first time in 10 quarters by 0.4% to $586 billion, according to Call Report data by the Federal Deposit Insurance Corp.

That includes increases by all loan size categories, including loans under $1 million, loans between $100,000 and $1 million and those under $100,000, boosted by lending from banks with at least $1 billion in assets, according to a report issued by the Small Business Administration's Office of Advocacy.

Bank of America (BAC), Wells Fargo (WFC), JPMorgan Chase (JPM) and other large-banking titans have been promoting their commitments to small-business lending.

And small banks are aggressively increasing their SBA lending, says Biz2Credit CEO Rohit Arora. Small-business loan approval rates by banks with less than $10 billion in assets reached a record high of 50.8% last month, according to Biz2Credit's monthly lending index.

Small banks and credit unions typically compete for the same small business borrowers.

On the other hand, March small-business loan approvals at credit unions are at a 10-month low. Loan approvals have fallen by one-fifth from a year earlier, Biz2Credit says.

"As banks have returned to the small-business credit market, the better qualified loan seekers are applying to banks for funding, thereby leaving credit unions with riskier candidates," Arora said in a release on Wednesday. "For the credit unions to bounce back in small business lending, they must improve their technology and expedite the loan process."

The biggest obstacle to getting Washington approval to raise the cap may come from the banking industry, specifically community banks which are worried about credit unions encroaching on their small-business turf.

Not only are community banks concerned about market share, but they also argue that credit unions should play on the level field as they do, specifically referring to the entities' non-profit statuses, meaning they are exempt from federal income taxes, as well as exemption from certain financial regulation, such as the Community Reinvestment Act.

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