More entrepreneurs are expressing their irritation with the credit union member business lending cap.

Terry McDaniel told the Wall Street Journal a request for a $175,000 business loan was turned down by Listerhill Credit Union in early 2010 because the Muscle Shoals, Ala.-based cooperative was too close to its cap.

Instead, the $526 million CU approved a $45,000 personal loan, which, combined with McDaniel's personal savings, was used to build the rest of a boat.

“I don't know what's right or fair,” McDaniel told the publication, of the legislation to raise the cap. “All I know is I am a family operation and I have been rejected when I shouldn't have been rejected.”

Brad Lawson faced the same scenario in April 2010 when he was turned down by Provo Postal Credit Union in Provo, Utah for a $100,000 loan to expand his women's clothing design company, the publication reported. The $6.2 million CU said it was too close to its MBL cap to make the loan.

Although the nine-month application process was “long and frustrating,” Lawson said he was eventually approved for a loan from a community bank.

CUNA and NAFCU continue to urge Congress to increase the 12.25% of assets MBL cap to 27.5% as banking groups criticize the move.

“Congress last year gave the banks $30 billion to make small business loans, but the banks' response has been tepid at best,” CUNA President/CEO Bill Cheney told the publication. “Credit unions don't need $30 billion in government assistance; we're just trying to raise a lending cap in the law that's arbitrary and outdated.”

Paul Merski, senior vice president of the Independent Community Bankers of America, told the publication raising the cap would give credit unions an edge over other lenders.

“Credit unions are supposed to serve individuals of modest means—they didn't get the tax exemption to do standard commercial lending,” Merski said. “Allowing them to do so “would injure the viability of community banking because if they have a 40% tax advantage, they can cherry-pick the best small-business loans.”

Instant Insights /

Small Business Owners Frustrated by MBL Cap

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