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New SBA rule could help CU participation says CUNA
WASHINGTON (12/16/08)—A proposed rule change by the U.S. Small Business Administration (SBA) would help establish rates that would make increased credit union participation in SBA loans possible, according to the Credit Union National Association (CUNA). Credit unions will be able to get important information on this and other SBA topics by participating in a Dec. 22 CUNA audio call. Regarding the proposed rule change, CUNA said in a Dec. 15 comment letter to the agency that the SBA interim final rule to adjust loan pricing would help offset current economic conditions that have limited the availability of business loans. Specifically, the rule would allow loans to be priced based on the 30-day London Interbank Offered Rate (LIBOR) plus 300 basis points. The plan would also permit secondary market loan pools to be priced based on the weighted average coupon rate for SBA loans under Section 7(a). CUNA said the option to better price loans would help alleviate the problems caused by the narrowing of the spread between LIBOR and the prime rate. “Our only concern with this proposal would be that small businesses may not be comfortable with having loans that are based on the LIBOR as they may not be familiar with LIBOR and may be concerned that these rates will fluctuate more than the prime rate,” the CUNA comment letter said. “However,” it added, “we believe these concerns will be alleviated to some extent both because using the LIBOR will now be an option in addition to using the prime rate and the use of the prime rate should become more prevalent as the spread widens between the LIBOR and the prime rate.” Regarding the change to the pricing of secondary market loan pools, CUNA noted that now the interest rate on a loan pool is the lowest net rate of all the loans in the pool. The interim final rule, CUNA Wrote, would be successful in its intent to improve liquidity in the secondary market. CUNA also reiterated its support of another government effort to improve liquidity in the secondary market, such as the Term Asset-Backed Securities Loan Facility (TALF) that was recently established by the Federal Reserve Board and the U.S. Department of the Treasury. Under the TALF, loans will be made to investors who purchase asset-backed securities, and this will include small business loans guaranteed by the SBA. Use the resource links below to access the complete CUNA comment letter letter and to register for the CUNA audio call.
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