Business Loans Secured by Primary Residence Are Exempt from the Aggregate Cap

Sen. Mark Udall (D-Colo.) proposed an amendment to the small-business lending fund bill (H.R. 5297) that would increase the member business lending cap from 12.25 percent to 27.5 percent of total assets for eligible credit unions. But is this amendment really necessary for credit unions to meet the credit needs of small businesses?

Sen. Udall speaking on the Senate floor on July 13 cited the case of Stacy Hamon to justify the expansion in the credit union’s business lending authority.

One Coloradan that I was particularly compelled by was named Stacy Hamon. Stacy is a small business owner in Thornton, Colorado, who started her own business: 1st Street Salon. Initially, Stacy went to a traditional bank, only to be turned away because credit was in short supply. To make the dream of owning her own business come true, Stacy turned to a credit union, which gave her the loan she needed through a second mortgage on her home. Stacey’s salon has become successful. And when I visited she had plenty of business and had even hired more workers. Those are real American jobs and a shining example of economic expansion that would not have been possible if it weren’t for a credit union that was willing to offer her a small business loan.

However, the Federal Credit Union Act exempts a loan that is fully secured by a lien on a 1- to 4-family dwelling that is the primary residence of a member from the definition of a member business loan. As a result, this loan, which was made to Stacy Hamon, does not count against the aggregate member business loan limit.

Moreover, business loans with a value less than $50,000 or with a governmental guarantee, such as Small Business Administration (SBA) loans, are excluded from the definition of a member business loan and the calculation of the aggregated member business loan limit.

These exemptions from the definition of a member business loan give credit unions sufficient authority to meet the credit needs of small businesses.