NAFCU witness: MBL cap makes small business lending more difficult

NAFCU_logo_edited-150x150John Farmakides, a witness for the National Association of Federal Credit Unions, testified before Congress on Thursday that the member business lending cap has made it more difficult for credit unions to lend to small businesses.

Farmakides, the president and CEO of Lafayette FCU, in Maryland, said before a House subcommittee that credit unions are forced to “pick and choose” creditworthy loan candidates, because of the limitations set by the MBL cap. He suggested raising the cap from $50,000 to $250,000 at minimum.

In his testimony, Farmakides urged lawmakers to support the Credit Union Small Business Jobs Creation Act, introduced by Reps. Ed Royce (R-Calif.) and Carolyn McCarthy (D-N.Y.) to increase the MBL cap from 12.25 percent of total assets to 27.5 percent.

“Many small businesses come to us looking for large lines of credit to help them meet cyclical challenges,” Farmakides said. “However, any line of credit above $50,000 counts toward our member business lending cap, even if the funds are not extended. This fact hampers our ability to meet the needs of many of our small-business members.”

Farmakides said the very existence of the MBL cap discourages credit unions from launching an MBL portfolio because they will have to be selective.

“Small businesses are the driving force of our economy and the key to its success,” Farmakides said. “The ability for them to borrow, and have improved access to capital is vital for job creation. Credit unions play an important role in helping our nation’s small businesses get the access to funds that they need. We want to do more, however, we are hamstrung by an outdated artificial member business lending cap that ultimately hurts small businesses.”

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