NCUA expands CUs' business lending options

WASHINGTON (9/25/03)--The NCUA Board yesterday unanimously approved as a final rule a new member-business loan (MBL) regulation, expanding credit unions' investment options.

Among other things, the new MBL regulation:

  • Amends construction and development loan equity requirements to require 25% (35% previously) borrower equity;
  • Authorizes highly capitalized RegFlex-designated credit unions to establish individual policies regarding whether to require personal guarantees by principals and the amount of such guarantees;
  • Authorizes well-capitalized credit unions to make unsecured MBLs within certain regulatory limits and restrictions;
  • Provides that purchases of non-member loans and non-member participation interests do not count against a credit union's aggregate MBL limit. This is subject to an application and approval process that will include safety and soundness reviews;
  • Allows 100% financing on certain business purpose loans secured by vehicles;
  • Provides that loans directly to other credit unions and credit union service organizations (CUSOs) are not classified as MBLs;
  • Clarifies and streamlines MBL documentation requirements;
  • Amends the prompt corrective action (PCA) rule regarding the risk weighting of MBLs; and
  • Authorizes federal credit union investment in CUSOs that originate business loans, subject to certain regulatory restrictions.

CUNA President and CEO Dan Mica, left, thanks NCUA Board Vice Chair JoAnn Johnson for her work and support of NCUA's member business loan final rule, which the board approved at its monthly meeting yesterday.
"We hope every credit union takes a look at this opportunity. While credit union have been making member-business loans since 1934, this new rule change comes at a time that is particularly important for credit unions and our country," said CUNA President and CEO Dan Mica. "First and foremost, this fills a tremendous member need. Second, small business is the backbone of the American economy and these types of loans will help create new jobs and boost economic growth. As Board Vice Chair [JoAnn] Johnson noted, small business involves over half our work force and accounts for 50% of the nation's GDP. And finally, a well-made member business loan is a good credit union investment in our nation's economy and future."

NCUA Chairman Dennis Dollar said issuing the new MBL rule is "a timely and necessary update" that will result in more start-up entrepreneurial capital being available for small business and greater safety and soundness diversification in credit unions' lending portfolios. "This is a well balanced regulation which clearly recognizes the statutory restrictions on member business lending by credit unions, but empowers financially strong credit unions with solid underwriting standards in place to reach out to more budding entrepreneurs in their fields of membership."

"As the President's plan for jobs and sustained economic growth will benefit small business owners across the country, this final member business lending rule will better position credit unions to serve their business members and play an important role in the President's strategy to strengthen small businesses," said NCUA Vice Chair JoAnn Johnson, who lead the agency's internal working group on member business lending.

"This rule will level the playing field between federal and state credit unions, provide needed capital for millions of small businesses, and enable more credit unions to offer a new service to reach more people in their fields of membership," said NCUA Board Member Debbie Matz.

The rule takes effect 30 days after it is published in the Federal Register.

  Resource Links
NCUA's Final Rule
Johnson's MBL Statement
Matz's MBL Statement


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