Thank you for featuring the timely news of the Treasury Department’s ruling allowing credit unions to participate in the popular Small Business Administration 504 Lending Program in your July 16 issue (“Treasury Tells Arrowhead: CUs Participation in SBA 504 Loan Program Permissible”). The ruling opens the door for credit unions to offer a full range of SBA Loan Programs to their members. Offering business loans and deposit services is an excellent way for credit unions to grow loans and deposits, diversify income sources, spread credit and rate risk, and serve the underserved small business market. The SBA 504 Loan program allows lenders to structure loans for real estate or large equipment purchases in such a way that can be advantageous to borrowers. For example, in addition to the purchase price of the building, the SBA allows many related costs to be added to the “project,” such as large equipment, machinery, and some tenant improvements. The 504 loans can be made for up to a combined 90% loan-to-value ratio based on the combined project cost, subject to applicable NCUA limits, of course. Additionally, terms for 504 loans are generally longer than for conventional commercial loans, which lowers monthly payments for the borrower. The loans are fixed rate, not variable, allowing the borrower to budget payments more easily. However, let me add some words of caution here. While SBA programs are a wonderful tool for credit unions, they should not be considered as the sole business-lending source. Many members will not be eligible for SBA loans, and the NCUA’s MBL rule (with or without the proposed amendments) is a significant impediment to full use of SBA programs. Moreover, SBA lending requires extensive expertise to originate the loans and extensive reporting to ensure that the guarantees are kept valid. Any credit union thinking about entering this field of lending should take the time to do it right. For those not interested in developing the expertise in-house, various CUSOs and other firms can help. Parker Cann EVP/COO Arrowhead Credit Union San Bernardino, Calif.

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