Credit unions can only make loans to their members, to other credit unions, and to credit union organizations. The National Credit Union Share Insurance Fund (NCUSIF) is the federal deposit insurance fund for credit unions. Credit Union Member Business Lending

There was no commercial lending cap on the amount of member business loans that credit unions could make until 1998. Legislation in the 112th Congress

Legislation has been introduced in the 112 th Congress to allow credit unions to expand their member business lending activities. H.R. 1418 , the Small Business Lending Enhancement Act of 2011, was introduced by Representative Edward Royce and referred to the House Committee on Financial Services on April 7, 2011. The Subcommittee on Financial Institutions and Consumer Credit held a hearing on the bill on October 12, 2011. H.R. 1757) to increase the current business lending cap to 27.5% of the total assets of the credit union from the current 1.75 times of the actual net worth or 12.25% of the total assets, whichever is less. The legislation would increase the lending authority of credit unions, but it does not require MBLs to meet the definitions of a small business-loan or of a small business. An informal analysis presented in this report asks whether the differences in regulatory requirements for credit unions relative to community banks could translate into greater risks to the stability of the financial system after passage of the legislation. Finally, recent studies pertaining to the current supply relative to demand for small business credit are reviewed to assess whether credit shortages exist. Definitions of Small-Business Loans and Small Businesses

Although "small business lending" appears in the bills' titles, the legislation does not contain any firm or loan size restrictions. The Small Business Administration (SBA) often uses the Federal Deposit Insurance Corporation's (FDIC) definition of a small business loan as either a commercial real estate (CRE) or commercial and industrial (C&I) loan of $1 million or less. If the legislation is enacted as currently written, credit unions would be able to make loans (to their members) that meet these definitions. Credit unions, therefore, could possibly become important competitors with community banks in the commercial lending market. Credit unions may hold less capital relative to banks for loans with maturities of five years or less. Raising the credit union lending cap would likely translate into more competition for community banks in the commercial lending market, but the differences in capital requirements, tax treatment, and fair lending compliance costs may not necessarily translate into a competitive advantage for credit unions. Given that commercial banks have tightened lending standards, credit unions arguably would be just as cautious about extending credit until the pace of the U.S. economic recovery increases, especially considering that their net worth reserve requirements increase exponentially for C&I loans, CRE loans, and loans with maturities that exceed five years.
Credit unions currently can make loans only to their members, to other credit unions, and to credit union organizations. In addition, there are restrictions in law on their business lending activities from which the credit union industry has long advocated for relief. Specific restrictions on business lending include an aggregate limit on an individual credit union's member business loan balances and on the amount that can be loaned to one member. Industry spokesmen have argued that easing the restrictions on member business lending could increase the available pool of credit for small businesses. Community bankers argue that raising the business lending cap would allow credit unions to expand beyond their congressionally mandated mission and possibly pose a threat to financial stability.
Legislation has been introduced in the House and Senate to raise the business lending cap for credit unions: H.R. 1418 and S. 2231, which are both titled the Small Business Lending Enhancement Act of 2011. Currently, the business lending cap for a credit union is 1.75 times of its actual net worth or 12.25% of the total assets of the credit union, whichever is less. The legislation would increase the cap to 27.5% of the total assets. A subcommittee of the House Financial Services Committee has held one day of hearings on H.R. 1418.
Although "small business lending" appears in the bill title, the legislation does not contain firm size or loan size restrictions. The Small Business Administration (SBA) often uses the Federal Deposit Insurance Corporation's (FDIC) definition of a small-business loan as either a commercial real estate or commercial and industrial (C&I) loan of $1 million or less. If the bills were enacted as currently written, credit unions would be able to make all C&I loans—those fitting the FDIC's definition and, in addition, those greater than $1 million. Hence, the legislation would allow credit unions to become larger competitors in the commercial lending market. It would not limit credit unions to making only small-business loans or to targeting their lending to small firms.
Although the legislation would allow credit unions to possibly become important competitors with community banks, the differences in capital regulatory requirements may not necessarily threaten financial market stability or expose the National Credit Union Share Insurance Fund, which is the federal deposit insurance fund for credit unions, to greater default risk. A comparison of capital requirements presented in this report shows that credit unions may hold less capital relative to banks for loans with maturities of five years or less, but they must hold more capital for loans of longer maturities.
Recent evidence pertaining to the demand for small business credit appears to be mixed. Regardless of the current demand for credit, credit unions are likely to be just as cautious as banks when granting commercial loans given the slow pace of the U.S. economic recovery. Tight lending standards are expected to persist until the macroeconomic outlook grows more favorable.