Credit Unions feel stymied by lending limitations After five years as a personal trainer, Nick Irons was ready in 2010 to open his own fitness studio in Bethesda. His search for financing took him from behemoth HSBC to community lender EagleBank. Problem was every bank he approached turned him down. ¶ Irons was bewildered. ¶ "My business was successful before I decided to open a studio, but most banks looked at it as if it were a brand new start-up, not an extension of an existing business," he said. ¶ Financial institutions are often leery of lending to fitness companies because of the failure rate, but Irons figured his years of experience and lengthy client list would make him a viable candidate for a loan. ¶ Determined to expand his operations, he began asking friends and colleagues for recommendations of lenders and was directed to Mid-Atlantic Federal Credit Union in Germantown. As a resident of Montgomery County, he was eligible for membership in the financial cooperative, and joined. After a multilayered application and review process, Irons was approved for a loan of around $250,000. (Jeffrey MacMillan/Capital Business) - Richard A. Wieczorek Jr., president of Mid-Atlantic Federal Credit Union, said his institution has pulled back on making business loans because it is nearing a federally mandated cap. The financing helped him purchase exercise equipment and retrofit commercial space on Wisconsin Avenue to house Irons Fitness. He hired four trainers and a dietician, who today see a total of 70 clients. "They wanted to get to know me as a businessperson, just as much as they wanted to know the nuts and bolts of the business," Irons said. Irons was lucky. If he approached Mid-Atlantic FCU today, President Richard A. Wieczorek Jr. said he might have walked away with another rejection. Mid-Atlantic has had to pull back on making loans because it is nearing a federally mandated cap on business lending. That cap is at the center of a contentious fight between the credit union and banking industries, one that may come to a head this year as Congress considers raising the limit. Legislation, now before the Senate, proposes to increase from 12.25 percent to 27.5 percent the amount of total assets a credit union can lend to businesses. Banks, by comparison, are not governed by any hard and fast cap. However, regulators keep vigilant watch over their exposure to various types of commercial loans. Credit union trade groups say financial cooperatives are flush with deposits, coming off of a banner year of membership gains, and need more flexibility to deploy that cash. Banking groups argue that credit unions, whose tax-exempt status helps them offer lower interest rates, are trying to gain an unfair advantage in the market. Raising the cap, they contend, will be lucrative for a few large cooperatives at the expense of taxpayers and the revenue-hungry federal government. What's more, bankers say it would be unreasonable to change regulations to suit an industry that was never meant to mimic commercial banks. Demand for loans grow As long as small-business owners, such as Irons, have difficulty securing loans from banks, credit union advocates feel justified in demanding more leeway to lend, especially as cooperatives are recording increased activity.