Who’s Owning Business Ownership?

Small business lending remains a national focus, but credit unions aren’t always top of mind for business owners ... yet.


The President, the Fed, the media, and others have all reiterated the link between meaningful economic growth for consumers (read: job creation) and small business. The coming decade may yet see the return of startups, mom-and-pop shops, and Main Street, U.S.A, but what liquidity will these startups receive and from where?

New company creation dropped to record lows in 2009, as “angel investors and venture capital funds cut back” and “opportunities for self-financing, like taking on additional mortgage debt, became more limited,” reports the Wall Street Journal.

Larger institutions, such as banks, often portrayed by the media as reluctant to step up for fear of risk, dominated the SBA 7(a) and other specialized business lending markets in the recent past. But as federal incentives dry up, so too might their interest.

According to Ben Bernanke, the ultimate solution lies in the hundreds of community banks with assets less than $10 billion, which were a key source of loans during the recession, reports the Associated Press.  

But institutions that avoid getting too deep into small business lending are not without their reasons. The rate of failure for new businesses over a five year period is roughly 50% and grows incrementally for certain types of business, such as restaurants, that capsize more frequently.

Credit unions and other smaller financial institutions cannot afford to take large risks. However, these institutions are tasked with a social role and obligation that for-profit industries are not. Currently, member business loans make up 5.4% of the cooperative industry's total loan portfolio, with balances growing 7.8% from 2009, according to Callahan's Peer-to-Peer.

Many credit unions have the potential to become more involved with MBL (per their own appetite for risk) in a safer and more efficient way than larger peers in years ahead. “A focus on local banking breeds industry - and geographic - specific expertise, which helps community banks avoid a cookie-cutter approach to analyzing creditworthiness,” says Businessweek. In times when  loans are as much about individual member relationships as any national priority, a percise, small-scale focus is an advantage and a catalyst for more effective business creation.