SAN DIMAS, Calif. — Can the Small Business Administration's 504 loan program essentially “eliminate” the current 12.25% member business lending cap?

The agency's 504 program provides businesses with long-term, fixed-rate financing for major fixed assets, such as land and buildings. Certified development companies work with the SBA and private-sector lenders to help provide financing.

For credit unions, 504 loans can do a number of things, said Kent Moon, president/CEO of Member Business Lending, LLC, during a Webcast hosted by the CUSO and WesCorp last week. For starters, the program can do away with the MBL cap, which currently limits credit unions to 12.25% of their assets.

“The 504 program can literally eliminate the regulatory cap,” Moon said. “The same program can generate higher fee income, higher liquidity and eliminate or substantially reduce loss potential” as well as “create a viable secondary market.”

Because the loans require a lower down payment, Moon said this feature alone will “drive a lot of small businesses into credit unions.” There is also a full amortizing fixed rate on the second mortgage and the blended rate provides a below market rate. Moon said the loan to value and risks are low as the government will step in and buy out the loan should a foreclosure occur.