Pushing The Member Business Loan Cap

For the one-third of credit unions that participate in member business lending, government restrictions influence their business models and local economies.


According to Callahan’s Peer-to-Peer software, for the one-third of credit unions that participate in member business lending, business loans and unfunded commitments (less sold participations and SBA-backed loans) is equal to 3.36% of their total assets, well below the current 12.25% (of total assets) cap. However, during the past five years member business lending has grown to represent a greater fraction of credit union total assets. In March 2009, business loans represented 4.75% of the total loan portfolio. Strong business loan growth last year coupled with a stagnant overall loan portfolio has bumped that percentage to 5.21% as of March 31, 2010.

Line Graph

Of the credit unions that hold business loans on their books, 85.8% of their member business loans is in Business Real Estate, 4.7% is in Agricultural Business Loans, 4.6% is in Construction and Development Loans, 2.5% is in Purchased Business or Participation Interests, 1.9% is in SBA Loans, and .5% is in Unsecured Business Loans. As demand for business loans continues to increase — and larger banks remain unable or unwilling to meet that demand — credit unions have the opportunity to drive growth in their loan portfolios and serve members’ financial needs.

Pie Chart

The industry as a whole is far from reaching the MBL cap; however, 133 individual credit unions have already surpassed it (of those 133, approximately 100 were grandfathered an exemption from the MBL cap because they exceeded the cap at the time of its imposition). Fifty-seven of the 133 credit unions that are over the cap are making more business loans in 2010 than they did in 2009. If the cap were raised to 25%, as proposed in The Small Business Lending Enhancement Act, only 63 credit unions would exceed the MBL cap. Increasing the cap allows for stronger origination numbers by the credit unions already involved in business lending and makes including business loans as part of their business model a more viable option.




July 19, 2010


  • I am concerned about the restrictive MBL lending cap making it difficult for many credit unions, who want to engage in business lending, to devote the necessary resources, in terms of staffing, systems and developing adequate procedures, because they won’t be able to generate a loan portfolio of sufficient size to support their initial investment. What many credit unions do is sell participations in their MBL's to other credit unions. This creates unwarranted risk in the system, as the purchasing credit unions often do not have sufficient expertise to properly underwrite what they are buying.
    Dan Sweet
  • I have over 30 experience in banking and credit unions with most of it being it commercial banking. My credit union has significant challenges with its deteriorating commercial loan participation portfolio. Based on this I feel that the cap should stay at its current level. Raising it could eventually lead to the demise of the credit union industry.
    Denny Keyes
  • Buying loan participations is a very different, and much riskier, MBL model than making direct loans to your members. Direct lending will allow you to know your borrower, and to get their deposits, all of which will reduce your risk. NCUA should allow credit unions who will focus on direct lending to raise their caps.
  • MBL's are a great opportunity for the credit union expand its ability to serve its membership. CU's can compete if you get the right people on board and establish slow and conservative guidelines. You can't be everything to everyone and expect to be good at it. Focus on owner occupied CRE on strong borrowers and build and expand from there. Banks are not lending and there are great opportunites to refinance and obtain very solid deposit and loan relationships right now but do it slow and do it right.
  • Similar to the respondent in Comment 1, I have 26+ years in commercial lending, virtually all of which was in the Middle Market and Small Business Depts. of large banks.

    Each individual brings a different skill set and level of lending experience to their respective CU's Business Services Dept. Placing a 12.25% (of assets) industry-wide cap on every CU's business loan portfolio not only ignores that fact, but in some cases it limits a CU's ability to take full advantage of the talents/skills of those they hired.

    I'd rather see a CU's cap established based upon a predetermined set of criteria (prior audit/exam results, delinquencies, covenant violations, etc.) that rewarded CUs who demonstrated the ability to manage a commercial portfolio, and limited those CUs from MBL activity who's results were not as favorable.
    Scott Kemp