Surrounding the chocolates, roses and love-filled greeting cardsthat made the rounds in Washington on Valentine's Day, was anannouncement from Rep. Ed Royce (R-Calif.) re-introducing abill that would increase the member business lending cap from12.25% of assets to 27.5%.

And the fight to expand lending authority heads back to thebattlefield as bank trade groups stock their quivers with morearrows in hopes of emerging victorious in a battle that has wagedon for at least a decade.

But how much of a fight is it? Especially in light of the factthat most credit unions are nowhere near their MBL caps and an edict from the NCUA last August allows morethan 1,000 credit unions to become a low-income designated credit union, which would exempt themfrom the cap.

“When we talk about those credit unions that are up against thecap, we're only talking about a few, less than 5%,” said Harvey Johnson, CPA and senior manager with PBMares LLP, aregional accounting and consulting firm based in Newport News, Va.“I think there's two things going on. For smaller institutions, theNCUA issued the low-income designation, which gave them unlimitedauthority and others that have started using participations tomanage the cap.”

As long as the expertise is there, Johnson said he is a big fanof participation loans. It's the credit unions that lack theexperience that tend to get themselves in trouble, he added.

Those type of cooperatives tend to the run the gamut but for thelarger credit unions, the MBL cap may not be as big of a concernbecause their cap limits are so far off in the horizon, saidWilliam McCluskey, CEO of Willow Capital Group, a firm inCenterbrook, Conn., that provides commercial loan origination,underwriting and closing for more than 30 credit unions, managing aservicing portfolio of nearly $330 million.

“The bigger issue is to attract quality loans, and there'spressure to put balances on the books, coupled with the fact ofbuilding a program,” McCluskey said.

He pointed to one large credit union client that is 47% loanedout and has between $500 million to $1 billion in capacity.However, in order to fill that space, McCluskey said the fuel hasto come from wanting to invest in the loan program and otherfactors, including justifying to the board that the credit unionhas income coming in.

Still, McCluskey can see both sides for raising and keeping theMBL cap where it is.

“There needs to be some outlet to letting a credit union nothaving to abide by the 12.25% arbitrary cap,” he offered. “On theflip side, I'm concerned that if the cap is raised, there are manycredit unions that are looking to enter the market. They might goout and grab any loans and lose sight of building qualityprograms.”

McCluskey pointed to another instance of a credit union that hasbeen a longtime proponent of raising the MBL cap. After building asuccessful program over the past 15 years, the cooperative hadbuilt a reputation in its market, he said.

“They're under a lot of pressure because they can't serve theircommunity, and they can't help grow the community this way,”McCluskey pointed out.

As the cap fight in Washington begins another round, marketconditions will often determine whether credit unions will humalong as usual, scale back or delay getting into commercial orbusiness lending programs this year, McCluskey said. Forinstance, in states like New York, where bank saturation is heavy,credit unions are facing stiff competition, he said. In other partsof the country, banks might not be as big of a concern. And forthose that are already flush in auto, mortgages and home equityloans, there might not be a need to turn to business loans to addto the bottom line.

“We focus on commercial real estate. It's a slow moving animal.We counsel credit unions that if they get into this type oflending, they need to mirror their communities,” McCluskey said.“One of the pressures of those who are trying to build balances isknowing local lenders.”

By targeting loans under $1 million, which are considered smallbalances to many credit union competitors, and partnering with agencies such asthe SBA, McCluskey said some can get a feel for how they can bestserve small businesses.

Knowing the markets and who they're competing with is just asimportant if not more important than where the MBL cap lift willgo.

“One thing that's different about 2013 is credit unions face notonly the limitation cap but also more money coming back into themarket,” said David Polevoy, executive vice president of commerciallending for Credit Union Business Services LLC, a Norcross,Ga.-based commercial mortgage lending firm owned by six Georgiacredit unions.

“A lot of credit unions would like a level playing field,particularly as more lenders come out in the marketplace,” Polevoysaid. “It's somewhat of an indication of a healthier economy. Butcredit unions have been out there throughout the cycle, have beengenerally conservative and have relatively good quality loans anddidn't have to pull back like other lenders did.”

Since 2003, CUBS has originated in excess of $250 million incommercial property and commercial mortgage loans in the Atlantaarea and throughout Georgia as well as properties in Alabama andTennessee, according to the CUSO's website. This year, it plans tocoordinate the funding of over $50 million in business andcommercial property loans.

Polevoy believes the NCUA's low-income designation and to asmaller degree, signing on with the SBA's 7(a) loan program, are afew ways credit unions will manager under their caps.

“Credit unions are experiencing asset growth. As assets expand,business lending expands,” Polevoy said. “Certainly, there's nointerest in pulling back. I think more and more credit unions havelooked at the commercial market and said, 'Here's an opportunity tohave good credit and diversified assets.'”

Well-capitalized credit unions that can show they haveestablished a strong MBL program should be allowed to press beyondthe 12.25% cap, McCluskey said. They should be given flexibility tooriginate loans with limited or nonpersonal recourse, provided thestructures of these loans are within accepted industry norms, headded. Nonrecourse loans for instance, are generally collared atmuch more conservative leverage points or loan-to-value and arereserved for the highest quality real estate assets, which shouldeffectively mitigate the risk of the loan investment, he explained.

For those credit unions that do not have an establishedprogram or that demonstrate inconsistent results, such as higherthan normal loan losses or delinquencies, regulations should serveas an effective guideline for prudent program creation and growth,McCluskey said.

“Increased capacity above 12.25% may provide a credit unioninappropriate justification to build a program deemed feasible dueto its potential size, but it cannot replace measured anddisciplined growth, which focuses on quality performance,”McCluskey said. “In other words, credit unions that exhibit riskybehavior or nonuniform execution of their programs, may not even bejustified in a 12.25% let alone a higher cap.”

For Business Lending Group LLC in Appleton, Wis., three of its fourcredit union clients are exempt from the MBL cap, said LindaKennedy, president/CEO of the CUSO. The fourth credit union stillhas plenty of room to grow towards its cap, she noted.

“I haven't seen a lot of new credit unions in Wisconsin gettinginto business lending,” Kennedy said. “Still, I hope Congress looksat increasing the cap. There are a lot of small businesses thatneed a credit union environment. Big banks don't want to do dealwith small credit. There are a lot of people that fall into thatunderserved market.”

In the current lending environment when loans are hard togenerate, there's an uptick in interest in member loans andnonmember participation loans, especially from credit unionsin the $100 million to $250 million asset range, said BillBeardsley, president of Michigan Business Connection LC, a CUSO inAnn Arbor that manages over $200 million in business loans for morethan two dozen credit unions.

“I don't think there's any doubt that the cap discouragessmaller credit unions from launching MBL programs because it limitsthe loans they can make,” Beardsley said.