Credit Unions an Increasingly Important Source of Small Business Finance

New from Advocacy this fall is the contract research report, The Growing Impact of Credit Unions on Small Business Lending, by James Wilcox of the University of California–Berkeley. Wilcox’s research finds that credit unions may have provided some extra business lending in response to reductions by banks, even during the financial crisis.

The author chose to study credit unions as a source of small busi­ness loans (defined as loans under $1 million), since these loans have risen substantially over the past decade. The growth in credit unions’ small business lending is apparent in many respects—small business loans have risen relative to total loans and assets at credit unions; relative to small business loans at community banks; and relative to small business loans at all banks.

Wilcox found that small busi­ness loans from credit unions tended to partially offset declines in business loans at banks. The results suggest that credit unions are an increasingly important source of small business loans as a longer-run development and in response to banks’ small business lending fluctuations. The study also suggests that the extent of the credit union offset to bank busi­ness lending varied considerably across regions. The estimates show that credit union offsets to bank business lending were pronounced in the South and Midwest. The results from the North and West indicate that rather than offsetting bank lending, credit union busi­ness lending may have accentuated shocks to bank business lending in those areas.