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Federal legislation imposes a limit on how much credit unions may lend to businesses. Several credit unions in Central Massachusetts have almost reached the cap of 12.2 percent of total assets. They are being forced to share their loans with other credit unions or turn away business. These and other credit unions are hoping for a federal increase in the business lending limit.

Every day, credit unions like Digital Federal and Webster First Federal must calculate loan-to-asset ratios to ensure the cap is not exceeded. Webster First President and CEO Michael Lussier said the cap affects yields, the amount the credit union earns from loans. Since margins for interest are so narrow, the legislation makes it difficult to achieve decent yields, he stated.

Under the proposed Small Business Lending Enhancement Act of 2011, the federal cap on credit union business lending would more than double, increasing to 27.5 of total assets. Mr. Lussier is just one of many credit union leaders who favors the bill. He pointed to the good track record for business lending and low number of bad debt write-offs that characterize credit unions.

Banks oppose the legislation because they feel that weak loan demands, not restricted lending practices, have led to declines in small business loans in recent years. They also feel that since credit unions are not subject to federal taxes as banks are, the bill is unfair. Banks note that credit unions have increased their market share in business lending, despite the cap.

Massachusetts Bankers Association’s Jon Skarin stated that some high-growth credit unions are trying to do things other than called for in their charter. As they are acting like banks, he believes they should be subject to federal tax. If the cap is not increased, some credit union customers may turn to payday loans to secure needed financing.