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Bill Would Give Small Businesses Bigger Loans

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By Steven Tanner on January 11, 2010 10:05 AM

Most small businesses, even those that have managed to do relatively well in these trying times, just can't get much respect from banks and other lenders. Although most US employers are considered small businesses, the small business loan is considered a very risky category from the lenders' perspective.

Local credit unions often are viewed as neighborhood-friendly partners, better able to assess the health of the barber shop down the street than national behemoths like Bank of America. The only problem is the arguably low cap on how much they can loan to small businesses.

But if Sen. Charles E. Schumer's proposed bill gets traction, as reported by the Rochester Democrat and Chronicle, credit unions will be able to make small business loans in amounts equal to 25 percent of their total assets, double the current cap of 12.5 percent.

The article suggests that large banks would oppose such legislation in an effort to protect market share, although these same banks have been harshly criticized for not making loans to small businesses. Meanwhile, credit card issuers have substantially trimmed credit limits, which affects small business owners just as much as consumers.

If the bill ultimately gets passed, many credit unions that currently don't have enough capacity to loan (i.e. 12.5 percent of their assets isn't enough for small business loans) may start loaning to local businesses. One such institition is Family First Federal Credit Union of Rochester, NY (cited in the article), which hired a small business loan officer after receiving an overwhelming number of requests.

Schumer publicly said he plans to introduce the initiative as part of a comprehensive finance reform bill sometime in late January or early February.

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