Thank you for sharing!

Your article was successfully shared with the contacts you provided.

WASHINGTON – The Small Business Administration is calling on credit unions and other lenders for their feedback on a proposed lender risk rating system for its 7(a) loan program. The system would be an internal tool to assist the agency in assessing the risk of each active 7(a) lender and certified development company’s SBA loan operations and loan portfolio, on a uniform basis and for identifying those institutions whose SBA loan operations and portfolio require additional monitoring or other action. Under the system, SBA would also assign each lender a composite rating based on certain portfolio performance factors, which may be overridden in some cases due to lender specific factors that may be indicative of a higher or lower level of risk, the agency said. SBA lenders would have access to their own ratings through SBA’s Lender Portal, SBA said. The risk rating system would also be used to assess the aggregate strength of SBA’s 7(a) and 504 portfolios. The agency is accepting comments until June 15. Mary Dunn, CUNA associate general counsel, told CUNA News Now that SBA’s proposal may be a step in the right direction but looking at the fine details is necessary. “Having tools, such as the proposal would provide, to assess the risk associated with 7(a) lending is undoubtedly positive from the agency’s point of view,” Dunn said, adding “but CUNA will be reviewing the proposal in detail to ensure it would not have a negative, disproportionate impact on credit unions.” The SBA-assigned composite rating for 7(a) loans would be based on four components: a 12-month actual purchase rate, problem loan rate, three-month change in the small business predictive score, which is a small business credit score on 7(a) loans, and projected purchase rate derived from that score. For certified development companies or CDCs, the rating would look at similar components. “In general, these factors reflect both historical lender performance and projected future performance,” the agency said. “The factors are derived through formulas developed using regression analysis validated and tested by industry experts.” SBA said it would perform quarterly calculations on the common factors for each lender, so that their composite risk ratings would be updated on a quarterly basis. Lenders whose overall portfolio performance, using all of the common components, is worse than their peers will receive a worse, or higher score, the agency explained. Those whose overall portfolio performance is better than their peers will receive a better, or lower score. Composite scores range from one or strongest to five or weakest, SBA said.

The agency said it “recognizes that it may be inequitable to compare all lenders in a risk rating system, without separating them into peer groups, because changes in loan performance would have dramatically different impacts on the portfolio performance of lenders of different sizes.” As a result, SBA has established peer groups to minimize the differences that could result from changes in loan performance for portfolios of different sizes.

Complete your profile to continue reading and get FREE access to CUTimes.com, part of your ALM digital membership.

Your access to unlimited CUTimes.com content isn’t changing.
Once you are an ALM digital member, you’ll receive:

  • Critical CUTimes.com information including comprehensive product and service provider listings via the Marketplace Directory, CU Careers, resources from industry leaders, webcasts, and breaking news, analysis and more with our informative Newsletters.
  • Exclusive discounts on ALM and CU Times events.
  • Access to other award-winning ALM websites including Law.com and GlobeSt.com.

Already have an account?

Dig Deeper


Credit Union Times

Join Credit Union Times

Don’t miss crucial strategic and tactical information necessary to run your institution and better serve your members. Join Credit Union Times now!

  • Free unlimited access to Credit Union Times' trusted and independent team of experts for extensive industry news, conference coverage, people features, statistical analysis, and regulation and technology updates.
  • Exclusive discounts on ALM and Credit Union Times events.
  • Access to other award-winning ALM websites including TreasuryandRisk.com and Law.com.

Already have an account? Sign In Now
Join Credit Union Times
Live Chat

Copyright © 2022 ALM Media Properties, LLC. All Rights Reserved.