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NAFCU witness Natasha Merz, vice president of commercial lending for Langley Federal Credit Union (Newport News, Va.), said during a House Small Business subcommittee hearing Thursday that Small Business Administration 504 loans should be exempt from the credit union member business lending cap.

She noted credit unions' willingness to serve small businesses, but she said the "antiquated and arbitrary member business lending cap prevents credit unions from doing more for America's small business community."

This arbitrary cap, she said, "can have its biggest impact on SBA 504 loans since the first mortgage issued by the credit union in a 504 loan is a regular commercial loan that counts toward the cap."

Merz also talked about the opportunities that come from the SBA's CDC/504 Loan Program, but that more lender training and education are still needed. This was in response to a question from Rep. Trent Kelly, R-Miss., about how the 504 loan program works for her credit union and its members and how to further spread the word about this program.

Langley FCU's Natasha Merz shaking hands with House Small Business subcommittee Chairman Dave Brat, R-Va. (Rod Lamkey Jr.)

During the hearing, House Small Business Committee Chairman Steve Chabot, R-Ohio, asked witnesses if there were any changes they would like made to the SBA's 504 loan program. Merz answered that a lot of her credit union's members still don't know about the various programs available, so explaining the process can be challenging – especially the fact that they have to make two payments on one property. She said this could be remedied if lenders would be allowed to collect payments and remit to the CDC on a monthly basis.

Merz also said the 10-year prepayment penalty for the borrower under the 504 program is not attractive and harder to sell for a lender. She said a shorter prepayment penalty would be a better option.

Merz also fielded a question from Rep. Stephanie Murphy, D-Fla., regarding her comments in her opening statement about the need for greater flexibility in the loan program. Merz's example was that if the 504 loan is made to a borrower with a restaurant, they cannot use the funds for smaller furniture, fixtures and equipment such as chairs, small equipment or working capital.

Murphy asked Merz what she does for credit union members when this issue arises. Merz said she would look into an SBA Express loan to purchase assets they can't finance under the 504 program.

Thursday's hearing was held by the House Small Business Subcommittee on Economic Growth, Tax, and Capital Access.