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The National Small Business Association, which definitely has a dog in the hunt in the small business loan chase, says the percentage of entrepreneurs who can’t obtain a loan is rising.

Their new study reports 41% of business owners can’t get financing, compared with 22% who claimed the same thing in 2008. The association also points out small businesses account for the following aspects of America’s economy:

  • 99.7% of all U.S. firms
  • 44% of all U.S. payrolls
  • 50% of all job-creation in the U.S.

To get the credit pipeline flowing again, the Credit Union National Association (CUNA)  is offering an idea: instead of trying to crowbar cash out of stingy big banks, try lifting the commercial lending limits for credit unions from the 12.5% of assets to 27.5%. CUNA President Bill Cheney says raising the lending limits for credit unions would pour $10 billion into the small business economy, creating 108,000 jobs for smaller financial institutions in 2011.

Congress seems open to this idea. Recently Sen. Mark Udall, a Democrat from Colorado, attached an amendment to the small business jobs bill that is waiting for Congress once it returns from summer recess. In the bill, Udall recommends following CUNA’s lead and raising the commercial lending rate for credit unions.

In a 2010 white paper, CUNA cites myriad problems with the current small business financing framework in place, largely built by big banks:

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  • There is no economic rationale for the limit – commercial banks have no such limits and safety and soundness concerns are unfounded - credit union MBL loss rates are lower than those on credit union consumer loans, and are a fraction of commercial loan loss rates at commercial banks.
  • Small businesses are finding it increasingly difficult to obtain credit due to the massive consolidation in the commercial banking arena. Moreover, those able to find commercial banks willing to lend often complain that the loan terms are much less attractive than they would be with additional lenders to choose from. Small businesses need more options – not fewer.
  • The current MBL limits deter new entry into the member business loan (MBL) arena. The Credit Union Membership Access Act of 1998 (CUMAA) imposed substantial additional regulations on credit union MBL activity and the volume of loan business needed to defer these and other start-up costs cannot be obtained with the current limits.

Naturally, big banks don’t like the idea, nor do they like the legislation proposed by Udall. Bank of America Stock Quote: BAC) and Wells Fargo (Stock Quote: WFC) have already started lending more to small businesses. So critics can say any move to raise lending limits for credit unions wouldn’t have the impact CUNA says it would.

“Raising the current cap on credit unions’ business lending is an action which would benefit only half of one percent of all credit unions in the nation,” says Rose Oswald Poels, senior vice president and counsel of the Wisconsin Bankers Association. Credit Unions historically have not been big lenders to small businesses – CUNA estimates that only 23% of all U.S. credit unions offer commercial lending services.

In the end, it might come down to who has the louder voice and better lobbyists in Washington.

But with legislation already written, at least the financing plight of small business owners will be in the national spotlight.

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