Small business loans from credit unions way up

One more indicator of credit conditions for small businesses: credit unions are originating a lot more business loans this year. Credit unions, which are not-for-profit, membership-based financial institutions, have not been exposed to the same losses that major banks have seen in mortgage investments and elsewhere. Anecdotally, I’ve heard that in recent weeks small business owners have been turning to credit unions for financing.

According to Bill Hampel, chief economist at the Credit Union National Association, credit unions originated $6.5 billion in business loans in the first six months of 2008, up 36 percent from the $4.8 billion in that period of ‘07.

To put that in perspective, in 2007 commercial banks originated about $287 billion in small business loans. (That’s according to Community Reinvestment Act data, click on table 4-1.)

So credit unions, like microlenders are a relatively small source of small business lending, but with many banks in bad shape, it looks like they may be increasingly important. It’s interesting that both these non-profit lending sectors are experiencing growth. Entrepreneurs should consider whether they can meet their financing needs through a credit union or microlender before turning to potentially high-cost options like credit cards or factoring.

Here’s a BusinessWeek podcast about how to tap credit unions for small business loans.

Source: http://www.businessweek.com/smallbiz/running_small_business