Back to basics in business lending

Credit unions have made Member Business Loans (MBLs) a priority from the very start. MBL regulations were included in the Federal Credit Union Act of 1934 to support small businesses while maintaining financial stability.

Even as the industry works to address arbitrary limits, credit unions nationwide continue to make a significant impact on small business owners, often when banks won’t. 

Credit unions are more likely to serve Black- and women-owned small businesses than banks. They also tend to serve the smallest businesses because they reinvest their profits back into benefits for their members. This structure enables credit unions to serve as a vital conduit of affordable credit for small businesses, especially in rural areas and underserved urban markets.

 

Scott Alford had a broken mower and no way to fix it, leaving his landscaping business in the lurch when Pelican State Credit Union came into the picture.

“In a last chance effort, went to Pelican, and with hope and desperation told them, ‘I need help, I need to be able to buy this equipment,’ and they took a chance,” said Alford. The family business has now operated for more than 17 years.

With nearly half of all credit union business loans under $150,000, credit unions have proven their commitment to supporting the smallest businesses, which are often the backbone of their communities.

 

What is the MBL Limit?

The MBL 12.25% of assets limit restricts the amount of member business loans a federally insured credit union can hold. Specifically, a credit union's net MBL balance must not exceed the lesser of:

  • 1.75 times the actual net worth of the credit union, or
  • 1.75 times the minimum net worth required for the credit union to be classified as "well capitalized" under federal regulations.

These MBL limits apply to all federally insured credit unions across the United States. However, there are exemptions, including:

  • Credit unions designated as low-income by the National Credit Union Administration (NCUA).
  • Credit unions participating in the Community Development Financial Institutions (CDFI) program.
  • Credit unions chartered with the primary purpose of making member business loans.
  • Credit unions that, as of August 7, 1998, had a history of primarily making member business loans.

 

There are some exclusions to MBL

Certain loans are excluded from the MBL cap, meaning they do not count toward the aggregate limit:

  • Loans fully secured by a lien on a one- to four-unit family dwelling.
  • Loans fully insured or guaranteed by a federal or state agency, or with an advance commitment for full purchase by such an agency.
  • Non-member commercial loans or participation interests in commercial loans made by another lender, provided they are acquired in compliance with relevant laws and regulations and are not used to circumvent the MBL cap. 

Since they were put in place in 1998, multiple bills have attempted to adjust or remove the MBL limits. A bill introduced in the 119th Congress would exclude loans made to veteran-owned businesses from the MBL cap. Given that over 20 percent of transitioning veterans indicate they would like to start businesses, this bill would help a good portion of the veteran community.

Other legislation would raise the threshold for a business loan to fall under the MBL limit from $50,000 to $100,000, opening the door for more small businesses to get the help they need.  The bill would be especially impactful considering nearly half of all credit union business loans are less than $150,000.

 

Impacting your credit union lending profile 

Understanding MBL regulations is essential for credit unions to ensure compliance with federal laws and avoid regulatory penalties and effectively manage lending portfolios, and assess risk.

Know how to identify opportunities for growth within the bounds of regulatory limits and leverage available exemptions and exclusions to maximize lending capacity. This can help you diversify your loan portfolio and take advantage of the exemptions and exclusions available to your credit union to better serve your members’ business needs. 

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