Knowing MBL Rules Doesn't Necessarily Mean CUs are Ready to Offer Business Loans

MADISON, Wis. – With a growing number of credit unions offering business loans to its members, CUNA Mutual Group recently provided a quick, refresher course on the regulatory ground rules. In the October 2004 issue of its Lending Resource Newsletter, CUNA Mutual reminded credit unions on what a member business loan is and what it isn’t. NCUA (regulation part 723) defines a member business loan as any loan, line of credit, or letter of credit made for a commercial, corporate, agricultural, or business property investment or venture purpose, wrote Margaret Olson, CUNA Mutual compliance research consultant. Exclusions are loans fully secured by a lien on owner occupied one-to-four-family dwellings that are a member’s primary residence; loans fully secured by shares in the credit union or deposits in other financial institutions; total loans to one member or associated members of less than $50,000; loans fully insured or guaranteed for repayment by a federal or state agency or that are subject to an advance commitment to repurchase by a federal or state agency. Most credit unions are aware of the MBL cap, which is no more than 12.25% of total assets or 175% of net worth, whichever is less, Olson wrote. Credit unions may grant no more than $100,000 or 15% of the credit union’s net worth, whichever is greater. This includes “unfunded commitments” such as letters of credit to one member or group of associated members. Waivers to the cap can be submitted to NCUA’s regional directors and credit unions can use the SBA’s federal guarantee programs, for certain small businesses, to make loans that are also excluded from the MBL cap, Olson wrote. Some states, including Connecticut, Maryland, Missouri, Texas, Washington, and Wisconsin have received approval for special state MBL rules that apply only to state-chartered credit unions, Olson pointed out. These rules are substantially similar to NCUA rules, and recent changes to the NCUA’s MBL rule have eliminated significant differences that once existed between state and federal regulations. Knowing the rules do not necessarily imply that a credit union is ready to offer member business loans, Olson suggested credit unions find out if their charters allow loans to groups, or only to individuals. “That will affect the types of businesses to which you offer loans,” she wrote. NCUA also requires the hiring of someone with at least two years of direct experience in the type of lending the credit union wants to do and can carry out “decision-making power.” Olson also suggested adopting a sound underwriting policy, based on specific NCUA requirements and support each loan decision with sufficient documentation. “NCUA doesn’t require the use of lending documents designed for business purposes when issuing a business loan,” Olson wrote. “However, once a credit union starts making a significant number of business loans, it should use documents designed for business that are lender-friendly. That is, the forms don’t include unnecessary disclosures, and have proper signature areas.” [email protected]