Did the credit union industry do enough to persuade legislatorsto include an amendment that would have raised the member businesslending cap in a newly signed $30 billion small business lendinglaw?

Depending on who you ask, hindsight seems to always be crystalclear. For Kent Moon, president/CEO of Member Business Lending LLC,credit unions did as much as they could but in the end, may havestalled their efforts by keeping the focus internal.

“We did not have the connections, communications and allianceswith various small business groups to gain their support inincreasing the cap,” said Moon, who heads MBL, a business lendingCUSO in Salt Lake City and is a former SBA Utah district director.“Credit unions were missing in action [here].”

On Sept. 27, President Barack Obama signed the Small BusinessJobs Act. Small businesses would be eligible for up to $30 billionin incentives. Nearly $12 billion in tax breaks, including severaltax cuts that went into effect the day the legislation was signed,aim to create 500,000 new jobs over the next few years, the WhiteHouse has said. Starting this year, small businesses would be ableto write off $500,000 in investments. An amendment sponsored bySen. Mark Udall (D-Colo.) that would have raised the MBL cap from12.25% of assets to 27.5%, was not include in the act despitestrong lobbying from credit union trade groups and others.

Moon said credit unions play a very critical role within thesmall business economy. Given that 30% to 50% of firms say they donot have access to adequate capital, he is baffled by the lendingrestraints.

“The increased cap is absolutely necessary. Small business is60% of the country's work force. America is small business,” Moonsaid. He is encouraged by the new small business act. However,before then, “it was an enigma to me how government continued toignore this sector. The legislation was long overdue.”

Teresa Halleck recently took the helm as president/CEO of the $5billion San Diego County Credit Union, which offers business loans.She said hearing more stories from small business owners on howcredit unions have helped communities create more jobs would helpall consumers better understand the benefits cooperatives bring tothe market.

“Small businesses need access to competitive loan fundingsources to grow and succeed, and credit unions should be empoweredto fulfill this community need,” Halleck said.”The artificiallyimposed MBL cap restricts the industry's ability to be a strongcommunity catalyst for economic recovery and jobs growth, andimpacts credit union profitability, flexibility and strength.”

Taking a look at the impact on credit union long-term health,Halleck said the prolonged consumer pullback in spending has causedloan-to-asset ratios at many credit unions to decline. With prudentinvestment opportunities offering very low yields at levelsinsufficient to offset declining loan portfolio income, return onassets suffers, she added.

“During this period when consumers are saving rather thanspending, credit unions could strengthen deposit relationships andbenefit from increased share of wallet if they could afford to doso,” Halleck explained. “Unfortunately, in this interest-rateenvironment the choice often exists between increasing depositbalances at the expense of ROA or foregoing deposit growthopportunities.”

Even though credit unions have plenty of capital stored up thatcould be lent to small businesses, many active lenders near or attheir cap have to either slow down or stop lending to stay withintheir MBL cap limit, said Larry Middleman, president/CEO of CUBusiness Group LLC, a business lending and deposit services CUSO inPortland, Ore. This especially hits the roughly 2,000 credit unionsin the $100 million or less asset category the hardest.

“I'm not saying go wild but they could make some good loans,”Middleman said. He recently spoke with a $100 million credit unionin a strong market that has been with CUBG for seven years andhired a veteran commercial banker to oversee the loan program.Still, they're capped at $12 million.

“They're doing everything right. Business lenders say, 'How canthey make the [cap] work?' It just cuts off available credit tosmall businesses,” Middleman said.

If ever there were a good time to make a strong case for liftingthe cap, this was it, Middleman pointed out. Still, he believescredit unions should continue to prove they have the tools to dosound lending and keep their low charge-offs and delinquency trackrecord going. He is a strong advocate of fine-tooth-comb duediligence.

“I'm a big proponent of credit unions justifying going beyondtheir cap. We need to do this right in a safe and soundmanner.”

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