Credit Unions and SBA Are Still Getting to Know Each Other

WASHINGTON-Credit unions and the Small Business Administration are similar to two people going out on their first date, according to SBA General Counsel David Javdan. In his comments during a panel on the legal risks and requirements of SBA lending at the NCUA’s Oct. 16 PALS conference, Javdan encouraged credit unions to bring problems that may be specific to credit unions to the attention of SBA so the two can work to resolve them. On February 14, SBA began allowing credit unions, beyond those geographically based, to begin participating in their lending programs. “We need to hear from you,” Javdan said. “Come work with us. SBA is in the business of doing business.” He emphasized that SBA is always exploring avenues to simplify its lending programs for all lenders. If problems are arising that may only affect credit unions, the agency would like to work them out, he said. “It’s not that we don’t care. It’s just that we don’t know,” Javdan explained. Additionally, to aid credit unions in expanding their business lending around the statutory 12.25% of assets cap, NCUA recently approved a more flexible member business lending rule, NCUA General Counsel Bob Fenner explained on the same panel. The rule reduces the 35% equity interest in construction loans to 25%, waives the $100,000 cap on unsecured loans to one borrower for RegFlex credit unions, and allows up to 100% financing on consumer-like commercial vehicles, up from 80%, among other things. “The regulation is good but Treasury did not allow it to be as good as it could have conceivably been,” CUNA General Counsel Eric Richard remarked. And, while business lending has its upside, legal risks such as breach of contract, breach of fiduciary responsibility, interference with the corporate governance of the borrower, Equal Credit Opportunity Act, environmental problems, Bank Secrecy Act, and Fair Debt Collection Act, and many others, come into play, he warned. The good news is that most of these are also risks in normal consumer lending as well, which credit unions are acclimated to, Richard added. Truliant Federal Credit Union CEO Marcus Schaefer was also on the panel representing a credit union working to build up its business lending portfolio. The credit union began member business lending 18 months ago and has an application in to SBA for its 7(a) lending program. As far as getting the program off the ground at the nearly $1 billion Truliant, Schaefer said, “There has not really been anything that has stopped us in our tracks.” Of the recent amendments to NCUA’s member business lending regulation, the most helpful have been the 100% vehicle financing, simplification of documentation, increasing the unsecured limit to $100,000, the elimination of the personal guarantee requirement for RegFlex credit unions, and the portions dealing with CUSO originations. As of Sept. 31, Truliant had made $9.5 million in business loans for a bed and breakfast, trucks and equipment, a taco restaurant and others. The average loan size as of Sept. 31 was $49,426. [email protected]