A bill intended to amend the Federal Credit Union Act is expected to come to a vote in the U.S. Congress that will advance the ability of credit unions to promote small business growth. The Small Business Lending Enhancement Act of 2011 (S.509 & H.R.1418), sponsored by Colorado Senator Mark Udall, calls for raising the limits on member business loans from its current ceiling of 12.25% of the total assets of the credit union to 27.5%.

If passed, the bill is expected to allow credit unions to compete more effectively with community banks and large commercial banks in lending money to credit worthy small businesses.

The Credit Union National Association (CUNA) notes in a letter to lawmakers who have supported the bill that it conservatively estimated that if the bill became law, credit unions could lend an additional $13 billion to small businesses in the first year after implementation, helping them create nearly 14,000 new jobs.

Commenting on opposition from the Independent Community Bankers of America, CUNA notes that the banker’s objection is rooted in their fear of competition, which given the circumstances is relatively hollow. Credit unions currently hold 5% of the small business loans issued by depository institutions. We believe that many of the additional business loans granted by credit unions once the cap is increased would be loans otherwise made by banks, CUNA said.

To put CUNA’s commentary in perspective, in the most recent FDIC quarterly report for Q4 2011, the regulator said C&I loans to small business (C&I loans in original amounts of $1 million or less) increased by $2.8 billion or 1%. The FDIC noted that this was the first time in the seven quarters for which data on quarterly changes in these loans are available that small C&I loan balances have increased.

To read the proposed legislation outlined on Senator Mark Udall’s website, click here.