Hood Says CUs May Make PPP Loans to Businesses Owned by Board Members

Credit unions may extend Paycheck Protection Program loans to small businesses owned by a member of their boards, NCUA Chairman Rodney Hood said Monday.

In a letter to credit unions, Hood said that in general, financial institutions may not make Small Business Administration loans to a business in which the lender or its associates own an equity interest.

The guidance was issued as a coalition of financial industry trade groups, including CUNA and NAFCU, sent a letter to SBA Administrator Jovita Carranza asking for details about why the PPP loan processing system continues to falter.

In his letter, Hood noted that unlike other SBA loans, loans made under the PPP are not subject to standard underwriting processes since a creditworthiness assessment is not required.

However, Hood said that a federal credit union’s board of directors must approve loans and lines of credit to officials that exceed $20,000. He added that the rate, terms and conditions on the loans may not be more favorable than those offered to other credit union members.

In the same letter, Hood reminded federal credit unions that they may not originate loans to non-members. He said if a potential borrower is not a current member, the credit union must ensure that the borrower becomes a member by the time of the loan closing.

In separate guidance, the SBA told financial institutions Monday that PPP loans must be disbursed in one lump sum within 10 calendar days of loan approval.

In their letter to the SBA, the coalition that includes the American Bankers Association as well as CUNA and NAFCU said, “Quite simply, it is taking too long to submit loans and get these funds where they need to go.”

The groups asked that if the system that accepts loan applications cannot be improved, “then we ask that you share that information with the public to help manage expectations for all of the small businesses still counting on PPP for a lifeline.”