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Bill Would Help More Servicemembers Receive MBLs (September 3, 2019)

Wednesday, September 4, 2019  
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WASHINGTON—Military members need help transitioning from active duty to civilian life, and one piece of legislation currently in the House might make that move easier from some, asserts Anthony Hernandez, CEO of the Defense Credit Union Council.

Feature 2305 low res

The bill, HR 2305, would  amend the Federal Credit Union Act to exclude extensions of credit made to veterans from the definition of a member business loan. That would prevent the loan from counting against the CU’s MBL cap, giving credit unions more incentive to grant business loans to servicemembers.

Hernandez, DCUC CEO, explained servicemembers face challenges in receiving business loans when they leave the military, looking for financing to start a new career. He noted that one of the challenges is the inability to establish a consistent, longer-term credit history with one financial institution as they move across the country and the globe during active duty.

Limited Opportunities

“Servicemembers are unfairly marginalized because of their prolonged military service. This limits the opportunity for servicemembers to makes successful transitions,” Hernandez said.

He emphasized that not having strong credit can get in the way of members receiving a business loan, and then the situation only gets tougher for the CU to make the decision to grant the loan when it knows it will count against their MBL cap.

Eliminating these loans from impacting the MBL cap would give credit unions more incentive to make business loans to servicemembers, Hernandez told

“What we want to do with this legislation is give more credit unions a nudge forward, saying make more business loans to servicemembers,” he explained.

The Logical Place

Hernandez believes credit unions are the logical place for servicemembers to turn for business loans when they leave the military, since banks shy away from making small business loans—which is the majority of the requests coming from the ex-military, he said.

“The Federal Reserve Bank of New York and the U.S. Small Business Administration just released a study—Financing their Future: Veteran Entrepreneurs and Capital Access—which found military veterans are struggling more than non-veterans to receive business funding from banks and financial institutions,” said Hernandez.

The study found veteran business owners applied for more funding, submitted more loan applications per business, and yet were denied loans at a much higher rate than non-veteran business owners, Hernandez said.

“And the government wasn’t much help either. The SBA’s 7(a) program has grown in recent years, but SBA guaranteed loans have benefited veterans far less than non-veterans (48% growth compared to 82%)—a point the author personally pointed out in on-the-record SBA meetings at the time,” explained Hernandez.

‘Complicated’ Issues

The study reiterated reasons Hernandez shared as to why servicemembers are being denied small loans to start a business—veterans are looking for micro business loans under $100,000 and banks generally can’t underwrite such loans cost effectively. Moreover, underwriting veterans is “complicated” due to insufficient credit histories and little collateral.

“As any veteran knowns, prolonged military service comes with unique stressors, such as frequent relocations that can make building credit difficult,” said Hernandez.

Hernandez said what makes matters worse, in his opinion, is that servicemembers who have proven themselves to be reliable in their service to their country often don’t need much of a loan to get their business started.

“They may need to only borrow $15,000 to buy some office equipment or some tools,” he said. “Credit unions, knowing our members, should be able to offer these loans.”

Getting Back on Track

Hernandez hopes the bill in the House can move forward event though it is currently stalled.

“It was introduced in the House and just sat there, as a lot of other things were capturing Washington’s attention, such as investigations into President Trump, talk of impeachment and the border issue. I think that was sucked all the energy out of this bill and we want to breathe life back into it,” said Hernandez. “I think this is a very positive thing that both sides of the political aisle can get behind. I view this as something easy—let's get the momentum back for this.”

Letter to Chairman

DCUC, in a letter to House Financial Services Committee Maxine Waters, (D-CA), emphasized the importance of the legislation and how credit unions can easily help here.

“This is where America's Defense credit unions can help bridge the gap. Our 23 million members are predominantly servicemembers and our volunteer boards of directors consist of veterans who understand these difficulties. Exempting loans made to veterans from the artificial member business lending cap not only makes it much easier to extend business credit to America's veteran-owned businesses, it also sends a clear signal that our nation recognizes their impact in fostering entrepreneurship, successfully building our economy,” wrote Hernandez.

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