Famed Chicago architect Daniel Burnham would always invoke the words “Make no little plans; they have no magic to stir men's blood” when designing a building or planning the Chicago World's Fair Exposition. In following his own advice, Burnham pursued every project he undertook with the commitment to push the limits. Make it the best and create something people would always remember. He was a bold thinker, had great vision and was never afraid to take chances.
This fall, the NCUA board has an opportunity to show they have vision and are willing to take a bold step. They will consider and vote on expanded business lending authority for credit unions. The proposed rule changes were a long time coming, and if approved, will provide a great opportunity for credit unions to further enhance their ability to promote and foster the growth of the business sector.
During the six years I sat on the NCUA board, I advocated for and supported efforts to give credit unions the ability to provide their members with loans to open and operate businesses when other financial institutions would not.
Credit unions, even during the most difficult economic times, were there for their members. They were ready and willing to help their members' businesses in order to keep people employed and spur the economy.
The one change that is proposed, which I feel would be detrimental to credit union operations and not condone a safe and sound best business practice, is the elimination of the personal guarantee for business loans.
When an individual goes to their credit union and asks for financial help to open, expand or continue the operation of their business, they are asking the other members of the credit union to help them. They are asking to use the funds other members have placed on deposit to support their venture.
When an individual is given a loan, they accept it with conditions and responsibilities. Business owners work hard every day to ensure the success of their business. They do so for their families, their employees and their desire to succeed. But most importantly they must do it for their fellow credit union members who lent them the money. They must acknowledge that vote of confidence by repaying the loan they received.
A personal guarantee means the borrower promises to repay their loan regardless of whether the business succeeds or fails. It is a promise to make sure the credit union members do not suffer a loss for the faith they placed in the borrower's business.
Requiring a personal guarantee is a sound business practice. Financial institutions across the country require it for any business borrowing funds. It provides a layer of security and protection for the institution and heightens the responsibility of the borrower to repay the loan.
Those who argue that requiring a personal guarantee inhibits credit unions from making loans are misguided. Saying that the elimination of such a guarantee will allow more loans to be made may be true, but it immediately raises questions of loan quality, member responsibility and protection from a loss. And for those who say that banks do not require it and therefore have an advantage over credit unions, I would ask where those banks are located and to see their loan losses.
All the other proposed changes to the MBL regulations I believe are within the jurisdiction of the NCUA board and will provide credit unions all they need to operate a successful business lending program for their members. Having a personal guarantee as part of that program will only enhance its operation.
Michael E. Fryzel
Attorney
Chicago, Ill.
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