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Interest Rates Rise for Some Small Business Borrowers As Congress Debates Higher Lending Rates for Credit Unions

small business lending meetingMany small businesses continue to struggle when it comes to borrowing capital, with two-thirds of small business owners in one recent survey saying that obtaining credit is still more difficult today than it was a few years ago. But legislation is pending in Congress that could give credit unions more freedom to fill the lending void that has existed since 2008.

Although the big banks reported fairly glowing statistics in their financial reporting on their small business lending activity for 2011, they use a definition of “small business” –firms with less than $20 million in annual revenue – that may seem a little too inclusive to many people. For the 95 percent of small businesses that bring in less than $1 million in annually, lending actually went down last year, according to one Philadelphia-based small business consultant who helps small companies find funding.

In another twist to the difficult borrowing environment, the Wall Street Journal reported that some small business owners will begin paying significantly more for credit beginning this month. The Journal found that a number of small businesses with lines of credit from Wells Fargo, one of the top four small business lenders, are facing imminent rate increases of 2.5 percentage points.

Wells Fargo would not disclose the number of businesses affected, but said that they are all former Wachovia customers who were notified a year ago that their terms could be changed in April 2012. (Wells Fargo absorbed Wachovia in late 2008 during the crisis in the U.S. banking and financial services sector.)

The Wells Fargo situation comes after news in January that some small business customers at Bank of America, another top small business lender, were having their credit lines cut off. Bank officials said the number of customers affected was very small and that they were also notified a year prior to having their credit lines called in.

Meanwhile, some in Washington are looking to the nation’s credit unions as a possible solution to the business credit crunch. Bipartisan legislation currently under consideration would allow credit unions to increase their business lending from 12.25 percent of assets to 27.5 percent.

The National Credit Union Administration says that raising the cap to 27.5 percent could lead to more than $13 billion in new loans, which could in turn result in more than 140,000 new jobs being created with a year. Nine out of 10 small business owners polled said that lack of credit is preventing them from hiring additional employees. Banks, on the other hand, oppose letting credit unions expand their presence in the business lending market, saying that credit unions have unfair tax and regulatory advantages.

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