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Remember credit unions? Now they're a ray of hope.

Tuesday, March 03,2009 09:16 PM

The Wall Street Journal had a great article today about credit unions and their willingness to give business loans to small (and I do mean small!) businesses. Not the 500 employee "small" business that needs to borrow a few million dollars to buy a new distribution center but the micro-business guy, like the Chem-Dry guy in Madison, Wisconsin, who needed a $39,000 loan to buy a truck and carpet cleaning equipment.

About 27% of the 8,147 credit unions in the U.S. offer business loans, according to the Credit Union National Association, a trade group based in Washington, D.C. The amount of business loans was up 18% last year to almost $33 billion from nearly $28 billion in 2007. The average loan size is about $215,000.

So they're doing more these days, especially with banks making it harder and harder to qualify for a small business loan - regardless of credit history or the banking relationship the business has built with their bank. And they say they could loan out a lot more .... but there's a glitch:

Many credit unions say they would lend out even more money if they could. But a 1998 federal law caps the amount of business loans credit unions can have at 12.25% of assets. The banking industry opposes any changes to the legislation, but credit unions hope to convince Congress to introduce legislation to lift the cap. Last year, a bill was introduced to raise the lid to 20%, but it didn't garner enough votes.

Too bad, because the article quotes several different credit union spokespeople who say they are in a position to fund "Main Street" businesses because most credit unions didn't make any risky loans in the sub-prime era. Credit Unions are, after all, owned by their members, so "it is not about maximizing profits, it's about maximizing service." Of course, they're having to raise their own standards a bit when they make a loan ... only their standards look nothing like a bank's. Like instead of taking an applicant's word for it when they fill in the "income" box, they now have to see a tax return. Seems worth digging through the file cabinet to me ... what do you think? Read the (free WSJ) article here: http://online.wsj.com/article/SB123603579028714219.html