Editor's note: The following editorial appeared Tuesday in the Dallas Morning News.
Whether it is the flower shop around the corner or the parts manufacturer down the block, small businesses are the heartbeat of American commerce. Yet they're finding themselves shut out from the bank loans they need to survive.
So the House did what Congress too often does: It passed a $30 billion taxpayer-financed measure crammed with incentives to encourage community banks to increase small-business loans. The bill now moves to the Senate, which plans to debate it later this month.
While this might seem a logical way to stimulate the economy and ease a serious credit crunch, it is symptomatic of Washington's penchant for complex, expensive solutions over simple, cost-effective ones. Instead of creating another taxpayer-funded program to coax bankers to open their vaults, Congress would be wiser to give credit unions broader authority to make the small-business loans that banks aren't making.
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Credit unions want Congress to raise the cap on loans to small businesses from 12.25 percent to 25 percent of a credit union's assets. The higher cap would free the institutions to generate $10 billion in new loans in the first year and add more than 100,000 jobs nationally. In Texas, the change could produce $700 million in new small-business loans and about 7,600 jobs. And, best of all, taxpayers would not be on the hook for any of this.
Predictably, bankers oppose the change, which they contend would encourage ill-advised loans and give the tax-advantaged, member-based credit unions an unfair advantage. Not only is this argument disingenuous, coming from an industry still reeling from its own bad lending decisions, but it also threatens to stymie a valuable alternative for cash-starved small businesses. In the absence of bank lending, more credit unions are making small-business loans and, thus, inching closer to the current cap. Unless it is raised, small businesses and the U.S. economy will be losers in this financial turf battle.
Despite bankers' claims, credit unions aren't a threat to their prosperity. Last year, credit unions held $36 billion in small-business loans, less than 5 percent of all such loans. Even if most credit unions reached the 25 percent cap, banks would still have more than 90 percent of the small-business market. And the only reason there is a cap today is that credit unions lost a lobbying battle with bankers 12 years ago.
Small businesses create two of every three private-sector jobs and need credit to buy equipment, hire workers, make payroll and keep their doors open. If bankers aren't willing to be a bigger part of the solution, Congress must allow credit unions to fill the void.