Small Banking Becoming Big Draw

HARRISONBURG — This year, Congress will likely take up legislation designed to grow small businesses by enlarging the pot of money available from credit unions.

Yet the proposal will face stiff competition from the banking industry, which views the measure as unnecessary and unfair.

Sen. Mark Udall, D-Colo., has, in recent years, filed legislation that would raise the annual cap on funds credit unions can lend to small businesses. Congress did not vote on the proposal in 2012, and a similar bill has yet to be filed in 2013.

However, a proposal is expected.

Credit unions are allowed to lend up to 12.25 percent of their total assets to small businesses. Under Udall’s legislation, that cap would grow to 27.5 percent.

“One thing that has hamstrung us, in some degree, is the cap,” says Steve Elkins, the senior vice president of retail and lending for DuPont Community Credit Union. “Credit unions are kind of sitting on the sidelines. We have money to spend. We are local advocates of the business community.”

DuPont, which has two branches in Harrisonburg, can lend about $100 million to small businesses under the cap. It is roughly halfway to that mark, according to Elkins.

“Small business …  is what drives the economy,” says Jacob Larew, manager of DuPont’s Reservoir Street banking center. “For economic growth, business development, it makes perfect sense to lend.”

Meanwhile, Park View Federal Credit Union, which has four local branches, is close to its lending cap of $14 million, CEO John Beiler says.

According to Udall, the higher cap would create more than 100,000 jobs.

‘Unfair’ Advantage

Dean Withers, president and CEO of Farmers & Merchants Bank in Timberville, says credit unions and community banks are “more than adequately” set up to help small businesses, rendering the legislation unnecessary.

Credit unions do not pay federal income taxes and are not regulated to the same extent as banks, he said.

“For [Congress] to increase [the cap], it puts [credit unions] at an advantage over us …  an unfair competitive advantage,” says Withers. “It gets down to really a fairness issue on our part. If they’re making these loans, we feel they should be on equal footing on regulations and taxes.”

Bruce Whitehurst, president and CEO of the Virginia Bankers Association, said the credit union industry has grown beyond the original purposes that granted it tax-exempt status, such as serving people of “modest means.”

“There’s something fundamentally broken in the model that a credit union can operate similarly to a community bank, yet not pay taxes,” he says. “[An increased cap] exacerbates what is already an unlevel playing field.”

Beiler admits that credit unions do get favorable tax relief, but he adds that banks do, too. He points to banks not paying state income taxes — instead paying a “more   favorable” franchise tax — in Virginia.

“In the end, we’re both treated differently than a for-profit business,” Beiler explains.

That means credit unions should be able to lend more, according to him, particularly for businesses seeking smaller loans that banks typically turn down.

“That’s where we see opportunity,” Beiler explains.

However, Whitehurst adds: “Banks are extremely liquid right now. There is ample capacity in the banking industry for small business loans, and appetite [for them].”

In a statement, 6th District Rep. Bob Goodlatte, R-Roanoke, says, “I continue to work with both credit unions and banks to ensure that small businesses in the community have access to the credit they need to grown and create jobs.”

A message for Democratic Sen. Mark Warner, whom Beiler has met with, was not returned.
 

Contact Preston Knight at 574-6272 or pknight@dnronline.com