It may not have been the most high-profile story of the massive public and private sector response to the COVID-19 pandemic, but nearly 850 credit union lenders stepped up and processed hundreds of thousands billions of dollars worth of loans to help their small business. members during the term of the Paycheck Protection Program. In fact, credit unions were the second largest type of lender segment to participate in PPP.
When Congress passed the CARES Act, federally insured credit union lenders were able to become PPP lenders through an expedited application process. This provision allowed credit union lenders to quickly begin processing loans for their members in April 2020, when the economic impact of the pandemic was uncertain, with projections of severe unemployment and recession or possibly even depression.
Before the pandemic hit, one of the goals of the US Small Business Administration (SBA) was to raise awareness of its low-cost or free services available to the country’s 30 million small businesses. The oft-stated goal was to keep the SBA from being the federal government’s best-kept secret for small businesses.
Normally, small businesses need access to capital to grow and expand. One way to expand access to capital for small businesses is to increase the number of lenders participating in SBA loan guarantee programs. Loan guarantee programs provide lenders with federally backed security on a portion of a small business loan in the event of default. Guarantees help lenders extend capital to qualified small businesses on reasonable terms and conditions.
As part of this effort, the SBA is partnering with the NCUA and credit union trade associations to engage credit unions in small business lending. A April 2019 Memorandum of Understanding between the two federal agencies – as well as continuing education sessions – are intended to stimulate discussion and help credit unions deliver more value to their small business members.
The origination of PPP loans ended on May 31, 2021 and PPP fully transitioned to the forgiveness portion only from July 1. Credit union lenders are now focused on canceling their members’ loans and servicing any loans that may remain on the books. Although the PPP has ended, there are several options for credit union lenders considering SBA loans as part of a service offering in the future.
Just before the pandemic, only about 200 credit unions participated in SBA loan guarantee programs. As evidenced by the industry’s response to COVID-19, more credit unions have the capacity to serve more small business members in the future. By providing access to SBA loans, credit unions can help small businesses fully recover from the pandemic and position themselves for success. Additionally, the SBA-guaranteed portion of a small business loan (typical SBA 7(a) business loans guarantee 75% of the loan amount) does not not counts towards the 12.25% cap on member business loans (MBL) for credit unions.
The COVID-19 pandemic has changed the fate of the SBA and credit unions. What hasn’t changed is the credit unions’ commitment to member service and the SBA’s mission to start, grow and grow small businesses across the country. Together, credit unions and the SBA can continue their work to increase opportunities for small businesses and help them thrive in communities across the United States.
Bill Briggs is an industry expert at BB Advisory based in Washington, DC, and most recently served as an interim associate administrator for the SBA’s Office of Capital Access. He oversaw the launch of the last round of the Paycheck Protection Program and served as a liaison between the SBA and financial institutions.
Robert Flock is a former Advocacy Director for CUNA in Washington, DC, where he served from 2017-2021.