With $49 billion in assets, Navy Federal is the world’s largest credit union. (Rick McCleary)

Vienna-based Navy Federal Credit Union has a proposition for its peers: Partner with us on small-business loans to avoid running up against the federal lending cap.

As the world’s largest credit union, with $49 billion in assets, Navy Federal has room to lend to businesses before approaching its own government limit — 12.25 percent of total assets. Which is why the credit union has unveiled C-Pal, a commercial loan participation program to aid smaller credit unions nearing the cap.

Under the program, Navy Federal will purchase a portion of a business loan originated by another credit union, anywhere from 50 percent to 90 percent of the debt. The originating lender will service the loan.

“Our goal is to help credit unions provide the capital for loans, so they can keep the member relationship without impacting their business lending cap,” said Jack Gaffney, executive vice president of lending at Navy Federal.

Navy Federal, he said, has been involved in business lending for seven years. As of the first quarter, it held 1,061 business loans valued at $179 million, less than 1 percent of its total assets, according to data from the National Credit Union Administration, a regulatory agency.

Navy Federal has dabbled in loan participations in the past, and currently has six such deals on its books. Gaffney said having executed those deals encouraged the credit union to broaden its reach.

Loan participations are routinely used by credit unions to execute large deals they cannot handle alone. But regulators are wary, worried some institutions might take on loans they would otherwise avoid if they had to carry the burden themselves. As a result, regulators have proposed limitations on the amount of loans that can be purchased from one lender.

“Underwriting standards for loan participations must meet or exceed the standards that each purchasing credit union uses for originating their own loans,” NCUA Board Chairwoman Debbie Matz said. Still, “when carefully executed and prudently underwritten, loan participations are a valuable tool for credit unions to diversify loan portfolios.”

C-Pal is a direct response to stalled legislation, now before the Senate, to raise the business lending cap to 27.5 percent from 12.25 percent .

Bankers have railed against lifting the cap because it would give credit unions, whose tax-exempt status helps them offer lower interest rates, an unfair competitive advantage. Credit union trade groups contend that changing the limit is a matter of providing more lending options to mom-and-pop operations.

“There are a lot of political aspects involved, but our focus is what can we do that’s in the best interest of our cooperative movement,” Gaffney said. “Rather than saying, ‘What can someone else do [to increase lending],’ we’re looking at what can we can do about it.”

Even if Navy Federal aims to stay out of the political fray, its actions could be used to support banking groups’ position that credit unions can successfully lend to businesses without the cap being lifted.

“Not only does [loan participations] indicate that credit unions have no trouble lending to businesses, but it also indicates that large credit unions are trying to get larger,” said James Ballentine, chief lobbyist for the American Bankers Association.

However, John Magill, executive vice president of government affairs for the Credit Union National Association, argues that loan participations in no way “obviates the need for Congress to raise the cap.”

He went on to say, “Even if a credit union the size of Navy Federal bought up enough credit union business loans to take it to its own cap, that would only be about a year or two years’ worth of small-business loan growth.”