NCUA Clarifies Member Business Lending Rules to Align More with SBA Rules

ALEXANDRIA, Va. – NCUA is hoping that several clarifications of its member business lending rules will encourage more credit union participation in the Small Business Administration’s SBA 7(a) business lending program In a May 20 opinion letter to the SBA, NCUA addressed a number of critical areas. Regarding the 12-year maturity limit/usury ceiling, NCUA wrote “as the member business lending rule does not address maturity or interest rate limitations, federal credit unions may rely on the exception provided in Federal Credit Union Act 701.21(e) and make MBLs as part of a government insured or guaranteed loan program for the maturity and interest rates permitted under the program.” On prepayment penalties and subsidy recoupment fees, NCUA said the SBA’s subsidy recoupment fee, which is part of the 7(a) program, does not appear to be a prepayment penalty and a FCU may collect it. The opinion also states that, even if the fee were a prepayment penalty, a FCU could charge it. While a FCU generally cannot charge a prepayment penalty on a loan, it can if it is a part of government guaranteed or insured loan program, NCUA wrote. On collateral and loan-to-value (LTV) requirements, a FCU may not rely on the exception for government guaranteed loans to avoid the MBL’s rule collateral requirements because the MBL rule expressly sets a borrower equity requirement for construction and development MBLs and maximum LTV ratios. If the SBA guarantees an MBL, however, the MBL rule’s general LTV requirements are relaxed. NCUA said in that case, an FCU may exceed the rule’s general 80% maximum LTV ratio requirement, up to 95%, because the MBL is guaranteed by an agency of the federal government. The opinion also notes that a FCU may seek a waiver from the appropriate NCUA regional office of the LTV requirements. NCUA is currently considering revisions to Part 723 to align the rule with the SBA’s lending programs. “Partnering with SBA is one of the best ways for credit union business lenders to manage their risks,” said NCUA Board Member Debbie Matz, the board’s liaison to SBA. “In the weeks since our Partnering and Leadership Successes (PALS) workshop on member business lending on March 25, when credit union leaders raised this issue with NCUA and SBA staff, we have been working to resolve inconsistencies between our rules. This new NCUA opinion letter intends to help credit unions use SBA guarantees to safely serve small business owners who need affordable loans the most.” NCUA Chairman JoAnn Johnson said by clarifying the statute and regulations for member business lending, FCUs “may find the SBA’s lending programs more attractive and beneficial in providing their members with such safe and sound business lending services.” [email protected]