Removing Barriers Blog

Personal Guarantee Requirement Removed From MBL Regulation
Posted May 13, 2016 by Chandler Schuette

As of today, credit unions can make member business loans without requiring a personal guarantee, in certain circumstances. This change is the first part of the NCUA’s recently finalized member business lending (MBL) rule, the rest of which will become effective Jan. 1, 2017.

The NCUA still considers a personal guarantee from those with a controlling interest in the borrower an appropriate risk-management practice.

Under the final rule, a credit union that elects not to require a personal guarantee for a member business loan still must include documentation of mitigating factors that sufficiently offset the relevant risk in the loan file.  Waiving the personal guarantee requirement may be appropriate for financially strong credit unions that have appropriate risk assessment and management processes in place, according to the NCUA.

Overall, the rule creates a category of “commercial” loans for safety and soundness purposes and utilizes the category of MBLs for compliance with the Federal Credit Union Act. It also removes all requirements for waivers.