Credit Unions and Small Business Lending

  • David P. Ely
  • Kenneth J. RobinsonEmail author


Among the issues raised by consolidation within the banking industry is a concern that small businesses will be less able to obtain credit as community banks are acquired by larger or non-local institutions. Community banks have traditionally been a major source of funding for small businesses. The impact of bank consolidation on credit availability may depend in part on whether the remaining community institutions expand their small business lending activities. This study examines whether credit unions have a propensity to extend business loans in markets that have experienced bank merger and acquisition activity. We find some evidence that credit unions are more likely to engage in business lending in markets characterized by greater bank merger and acquisition activity. Moreover, the estimated economic significance is meaningful in many of the specifications.


Credit unions Small businesses loans Member business loans 

JEL Classification

G21 G28 



The authors would like to thank Drew Dhal, Mark Vaughn, participants at the 2005 Western Economic Association meetings and the 2004 meetings of the Financial Management Association for helpful comments and suggestions. Any errors are our own. The views expressed are those of the authors’ and should not necessarily be attributed to the Federal Reserve Bank of Dallas or the Federal Reserve System.


  1. Avery RB, Samolyk KA (2004) Bank consolidation and small business lending: the role of community banks. J Financ Serv Res 25:291–325. doi: 10.1023/B:FINA.0000020667.29802.1c CrossRefGoogle Scholar
  2. Berger AN, Udell GF (1996) Universal banking and the future of small business lending. In: Saunders A, Walter I (eds) Universal banking: financial system design reconsidered. Irwin, Chicago, pp 558–627Google Scholar
  3. Berger AN, Udell GF (2002) Small business credit availability and relationship lending: the importance of bank organizational structure. Econ J 112:F32–F53. doi: 10.1111/1468-0297.00682 CrossRefGoogle Scholar
  4. Berger AN, Saunders A, Saclise JM, Udell GF (1998) The effects of bank mergers and acquisitions on small business lending. J Financ Econ 50:187–229 (November). doi: 10.1016/S0304-405X(98)00036-1 CrossRefGoogle Scholar
  5. Berger AN, Demsetz RS, Strahan PE (1999) The consolidation of the financial services industry: causes, consequences, and implications for the future. J Bank Financ 23:135–194. doi: 10.1016/S0378-4266(98)00125-3 CrossRefGoogle Scholar
  6. Berger AN, Bonime SD, Goldberg LG, White LJ (2004) The dynamics of market entry: the effects of mergers and acquisitions on entry in the banking industry. J Bus 77:797–834 (October). doi: 10.1086/422439 CrossRefGoogle Scholar
  7. Berger AN, Miller NH, Petersen MA, Rajan RG, Stein JC (2005) Does function follow organizational form? Evidence from the lending practices of large and small banks. J Financ Econ 76:237–269 (May). doi: 10.1016/j.jfineco.2004.06.003 CrossRefGoogle Scholar
  8. Berger AN, Rosen RJ, Udell GF (2007) Does market size structure affect competition? The case of small business lending. J Bank Financ 31:11–33 (January). doi: 10.1016/j.jbankfin.2005.10.010 CrossRefGoogle Scholar
  9. Boot AWA (2000) Relationship banking: what do we know? J Financ Intermed 9:7–25. doi: 10.1006/jfin.2000.0282 CrossRefGoogle Scholar
  10. Cetorelli N (1999) Competitive analysis in banking: appraisal of the methodologies. Econ Perspect 23:2–15 Federal Reserve Bank of ChicagoGoogle Scholar
  11. Cole RA, Goldberg LG, White LJ (2004) Cookie-cutter versus character: the micro structure of small business lending by large and small banks. J Financ Quant Anal 39:227–251 (June)CrossRefGoogle Scholar
  12. Craig S, Hardee P (2007) The impact of bank consolidation on small business credit availability. J Bank Financ 31:1237–1263 (April). doi: 10.1016/j.jbankfin.2006.10.009 CrossRefGoogle Scholar
  13. DeYoung R, Hasan I, Kirchoff B (1998) The impact of out-of-state entry on the cost efficiency of local commercial banks. J Econ Bus 50:191–203 (March). doi: 10.1016/S0148-6195(97)00077-5 CrossRefGoogle Scholar
  14. DeYoung R, Goldberg LG, White LJ (1999) Youth, adolescence, and maturity of banks: credit availability to small business in an era of banking consolidation. J Bank Financ 23:463–492 (February). doi: 10.1016/S0378-4266(98)00086-7 CrossRefGoogle Scholar
  15. Emmons WR, Schmid FA (2000) Bank competition and concentration: do credit unions matter? Federal Reserve Bank of St. Louis. Review (May/June):29–42Google Scholar
  16. Evanoff DD, Örs E (2002) Local market consolidation and bank productive efficiency. Federal Reserve Bank of Chicago, unpublished manuscript, 2002–2025Google Scholar
  17. Federal Register (2003) 68, no. 190 (Wednesday, October 1), 56537–56553Google Scholar
  18. Feinberg RM (2001) The competitive role of credit unions in small local financial services markets. Rev Econ Stat 83:560–563 (August). doi: 10.1162/00346530152480207 CrossRefGoogle Scholar
  19. Feinberg RM (2003) The determinants of bank rates in local consumer lending markets: comparing market and institution-level results. South Econ J 70:144–156 (July). doi: 10.2307/1061636 CrossRefGoogle Scholar
  20. Feinberg RM, Ataur Rahman AFM (2001) A causality test of the relationship between bank and credit union lending rates in local markets. Econ Lett 71:271–275. doi: 10.1016/S0165-1765(01)00365-2 CrossRefGoogle Scholar
  21. Frame WS, Srinivasan A, Woosley L (2001) The effect of credit scoring on small-business lending. J Money Credit Bank 33:813–825. doi: 10.2307/2673896 CrossRefGoogle Scholar
  22. Goddard JA, McKillop DG, Wilson JOS (2002) The growth of US credit unions. J Bank Financ 26:2327–2356. doi: 10.1016/S0378-4266(01)00203-5 CrossRefGoogle Scholar
  23. Goldberg LG, White LJ (1998) De novo banks and lending to small businesses: an empirical analysis. J Bank Financ 22:851–867. doi: 10.1016/S0378-4266(98)00011-9 CrossRefGoogle Scholar
  24. Hancock D, Peek J, Wilcox JA (2005) The effects of mergers and acquisitions on small business lending by large banks. U.S. Small Business Administration Office of Advocacy, Research Study Contract Number SBAHQ-02-Q-0024Google Scholar
  25. Heitfield E, Prager RA (2004) The geographic scope of retail deposit markets. J Financ Serv Res 25:37–55 (February). doi: 10.1023/B:FINA.0000008664.47740.a5 CrossRefGoogle Scholar
  26. Keeton WR (2000) Are mergers responsible for the surge in new bank charters? Econ Rev 85:21–41 Federal Reserve Bank of Kansas CityGoogle Scholar
  27. Matz D (2003) Speech before the American credit union mortgage association in Orlando, FL, (March 17), Available:
  28. Mester LJ (1997) What’s the point of credit scoring? Federal Reserve Bank of Philadelphia. Bus Rev 3–16 (September/October)Google Scholar
  29. National Credit Unions Administration (2007) Vice chairman hood celebrates small business week, Press release, April 23. Available:
  30. Peek J, Rosengren ES (1998) Bank consolidation and small business lending: it’s not just bank size that matters. J Bank Financ 22:799–819. doi: 10.1016/S0378-4266(98)00012-0 CrossRefGoogle Scholar
  31. Petersen MA, Rajan RG (2002) Does distance still matter? The information revolution in small business lending. J Finance 57:2533–2570. doi: 10.1111/1540-6261.00505 CrossRefGoogle Scholar
  32. Plagge J (2005). American bankers association, testimony before the committee on ways and means, U.S. House of Representatives, November 3, 2005. Available:
  33. SBA (2003) SBA expands opportunities for small business through credit unions, SBA News Release, (February 14). Available:
  34. Senate US Committee on Banking, Housing, and Urban Affairs (1998) Report 105–193, (May 21). Available:
  35. Stein JC (2002) Information production and capital allocation: decentralized versus hierarchical firms. J Finance 57(5):1891–1921. doi: 10.1111/0022-1082.00483 CrossRefGoogle Scholar
  36. Stoner FE (2007) Letter from Floyd E. Stoner, Executive Director Congressional Relations & Public Policy, to the Honorable Nydia M. Velázquez, House Small Business Committee, April 27. Available:
  37. Strahan PE, Weston JP (1998) Small business lending and the changing structure of the banking industry. J Bank Financ 22:821–845> doi: 10.1016/S0378-4266(98)00010-7 CrossRefGoogle Scholar
  38. United States Bureau of the Census (2007) Statistics of U.S. businesses: explanation of terms. Available:
  39. United States General Accounting Office (2003) Credit unions. Report to the Ranking Minority Member, Committee on Banking, Housing, and Urban Affairs, U.S. Senate (October), GAO-04-91Google Scholar
  40. Yingling EL (2003) Letter from Edward L. Yingling, Executive Vice President American Bankers Association, to Ms Becky Baker, Secretary of the Board National Credit Union Administration, May 6. Available:

Copyright information

© Springer Science+Business Media, LLC 2008

Authors and Affiliations

  1. 1.Department of FinanceSan Diego State UniversitySan DiegoUSA
  2. 2.Federal Reserve Bank of DallasDallasUSA

Personalised recommendations