Would higher limits on the amount credit unions can lend to small business make a difference? Sen. Charles Schumer (D-NY) thinks so.

Schumer is co-sponsoring a bill that would increase the amount of their assets credit unions can lend to small businesses from 12.25 percent to 25 percent, BusinessWeek reports. The proposal has been included in The Small Business Lending Enhancement Act, which is currently before committees in the U.S. House and Senate, and has bipartisan support in both chambers.

The Credit Union National Association believes raising loan limits could create some 100,000 new jobs and $10 billion in new loans. “More lending means more capital for small businesses,” John Magill, senior vice president for legislative affairs at the association, told BusinessWeek, “and that translates into more jobs at a time when job creation is a national priority.”

However, the concept faces stiff opposition from the Independent Community Bankers of America, a trade association for small banks. The association is battling the proposal, contending that it does not fit credit unions’ mission as tax-exempt organizations. Community bankers also say there’s no need to raise limits in the first place, since most credit unions haven’t come close to hitting the limits. Finally, the bankers argue, making smart decisions about business lending is harder than ever in today’s tough regulatory climate, and most credit unions lack the sophistication to do so.

According to the California Credit Union League in Ontario, U.S. banks' business lending dropped by 15 percent over the past year, while credit union lending to businesses rose 11 percent in the same period. The average loan amount from a credit union was $210,000.

But one Southern California credit union president told a Press-Enterprise reporter that, while he supports the measure, he doubted it would have much impact on local businesses because demand for loans has dried up.

Both credit union and bank executives have gone to Washington in recent months to pitch their side of the issue.

While community banks and credit unions may be battling each other on this issue, the real question remains how much impact this will have on small businesses.  Undoubtedly there are small businesses that need credit, but not everyone agrees that lack of credit is a big problem facing small businesses today.