In coming from a bank environment two years ago to start up anSBA department at a credit union, I was immediately shocked by theregulator limitations placed upon SBA lending. Both of SBA'sflagship programs for lenders, the 7a and the 504 loan programs,were restricted by NCUA regulations, which either eliminated theuse of the program (504), or substantially limited the ability toprocess moderate dollar loan requests (7a). The same regulationswere not in place in the bank environment, and substantiallylimited the amount of financial assistance the credit union couldprovide to its membership. Due to Loan to Value requirements, setat 80%, processing loans through the 504 loan program appeared tobe impossible. This was primarily due to standard 504 loanguidelines allowing 90% Loan to Value financing, but the NCUAregulation limited the total transaction to 80%. Additionally, withthe lender 1st Trust Deed providing only 50% of the total financingpackage (typically, the Certified Development Company provides 40%,with the member providing the remaining 10%), it is typical for thelender to also provide a short-term "bridge" loan on the remaining40% being financed by the Certified Development Company. Thisallows the borrower to close the transaction in a timely manner,avoiding the need to wait approximate 90-120 days for the SBAGuaranteed Debenture to close. The NCUA regulation changeseffective October 1, 2003 clarified this issue, and provided for upto a 95% Loan to Value as long as the entire request was, inaddition to other factors, subject to advance commitment by anagency of the federal government. The SBA Authorization forDebenture provides the approval for the Certified DevelopmentCompany to fund a debenture, and payoff the lender's short-termbridge loan. I believe this clarification provided all creditunions the ability to process SBA 504 loans and allowed them toprovide an equal service that their member may have been obtainingthrough non-credit union funding sources previously. The 7arestrictions were similar, as they were Loan to Value related. Themajority of the SBA loans that I assisted with underwriting andprocessing (over 250) prior to coming to a credit union wereapproved and funded with Loan to Value ratios greater than 150%.The majority of borrowers requesting SBA funds would not haveaccess to collateral levels that would allow them to comply withthe 80% Loan to Value requirements. Based upon this, and the MemberBusiness Loan rules, which state that the SBA Guaranteed portion ofa loan are not required to calculate a loan as a Member BusinessLoan, credit unions are limited to processing loans of no greaterthan $200,000 (unless sufficient collateral was available, and asstated above, this is rare). The NCUA regulation changes effectiveOctober 1, 2003 provided for loans to be collateralized at 95%,instead of the previous 80% threshold. This regulation was againclarified in a NCUA news release dated May 20, 2004. Neither theactual regulation, nor the May news release provided much relieffor processing SBA 7a loans, as the majority of the membersrequesting SBA assistance do not have this level of collateralavailable to support their loan request. Non-credit union financialinstitutions could process these requests without limitations. Theproposed amendments dated June 24, 2004 (which are currently in thecomment period) provide much needed relief from the current NCUAregulations. I have interpreted them to allow full access to theSBA 7a lending program, without collateral restrictions. Ifapproved, this would allow credit unions the opportunity to betterserve its business membership, and provide working capital loansthat were previously causing members to be sought throughnon-credit union sources. With the Loan to Value requirements forSBA 7a loans being relaxed to meet standard SBA Guidelines of "allavailable assets to be offered/obtained", credit unions now havethe opportunity to provide SBA 7a loans greater than the previous$200,000 threshold, with a 75% guaranty on loan requests up to$1,333,333 (actual loan amounts can be processed up to $2,000,000,but the maximum guaranty is $1,000,000, providing as little as a50% guaranty on amounts greater than $1,333,333). With most creditunions relatively new to SBA and Members Business Loan products,the increased loan threshold should provide all credit unions agreater level of comfort in knowing that they can assist memberswith larger loan requests, without concern to specific collateralrequirements.