Even though Black Hills Federal Credit Union is the largest SBAlender in South Dakota, its portfolio is relatively small, makingjust 29 loans totaling $1.6 million in 2008, the most current dataon record.

“For those of you who are doing the math, as you can see, wemake very small loans,” Roger Heacock, president/CEO of the $837million cooperative in Rapid City, S.D. Heacock made the statementto the more than 100 attendees who tuned into a March 25 audioconference hosted by CUNA on credit unions working with the SBA andthe NCUA on business lending. CUNA President/CEO Dan Mica moderatedthe session.

Still, Heacock said without the SBA's loan programs, the CUwould have had to turn away some of its current borrowers. Lastyear, Black Hills was recognized by the agency for writing more SBAloans than any other financial institution in South Dakota. As offourth quarter 2009, it was still the top SBA lender in the state.What has helped the CU maintain that top ranking is being able tosteer members to the SBA's small business development centers,which assists with putting business plans together, said KevinTiede, business lending manager at Black Hills.

The CU's success story was one of the highlights of the CUNAaudio conference. Also on the call was SBA Administrator KarenMills, who tracked CUs' participation progress in the agency's loanprograms. In 2004, the industry had $125 million in loans and isnow at the $500 million mark. Over the past year, 1,000 new lenderswho had not been active with the SBA since 2007 had since renewedactivity, Mills said. Roughly 100 of those were CUs.

“I travel around quite a bit, and I've met a lot of you,” Millssaid. “My impression is you all know your communities very, verywell. We have a great desire to be more connected to credit unionsand to bring in more credit unions to SBA guaranteed lending.”

While CUs are intimately familiar with the SBA's 7(a) and 504loan programs, the agency's micro-loan division has seen renewedinterest as of late, said John Wade, financial analyst at the SBA'sOffice of Financial Assistance. He also coordinates the approvalprocess for nontraditional lender applicants, including creditunions, in the 7(a) program. The agency provides up to $35,000 inmicro loans and a technical assistance component-”something manycredit unions have built into their mission.”

“There are a lot of home-based businesses or store-frontbusinesses that are just getting started and some may be at a pointwhere they need financing to take them to the next level,” Wadesaid. “What's appealing to credit unions is the SBA provides loansto micro-loan intermediaries,” which includes credit unions.Self-Help Federal Credit Union and Alternatives Federal CreditUnion serve in these roles, he pointed out.

Regardless of the accessibility to the SBA loan programs,monitoring and risk rating has taken on a more urgent tone in lightof a troubled economy, most agreed. Wade said the agency “is not inthe business of seeing small businesses fail,” but that being said,there are situations where some things cannot be controlled. Inthose cases, deferments and other forms of relief areavailable.

NCUA Staff Attorney Frank Kressman acknowledged that “thereality is loans are risky business.” The function of the regulatoris to provide a framework to mitigate those risks, he said. Thechanges made in 2004 to sync NCUA's regulations so that creditunions could work more with the SBA have been “generous.” Even thetwo-year experience requirement for making certain types of MBLshas some flexibility, Kressman said. A credit union can have anin-house person, work with a third party, a CUSO or non-CUSO orhave a conjunction of theses to meet that guideline.

Over regulation is not the goal as a January 2010 letter tocredit unions on business loan risk management reiterated, saidMelinda Love, director of the NCUA Office of Examination andInsurance.

“As we have come through a boom time, we have a lot of creditunions that are feeling the pain” of seeing collateral valuescollapsed, Love said. “Loan workouts are one of the most importantparts of an MBL portfolio. Credit unions are helping membersthrough difficult times and when you're making an MBL, you'redealing with a person's livelihood.”

That reminder, combined with who a credit union may partner withto bring business lending to its members, deserves fine-toothattention. Wade said the SBA recognizes that CUSOs and other lenderservice providers are an alternative for those that don't havein-house expertise.

“I should also say that there is no reason why after you'veengaged a service provider, you can reach a point where you say 'Ithink I can do this on my own'” Wade said. “This is the germinationof SBA, and really, MBL lending taking off.”

NCUA Chairman Debbie Matz said MBLs grew by $1 billion and SBAloans increased 15% in 2009. Growth, “which makes me, as aregulator, very happy.” It makes sense to do SBA lending, Matzoffered. Even more important, she stressed, is that the guaranteedportion of the loans don't count against the MBL 12.25% of assetscap.

“Some might think it's unusual that a regulator is encouragingcredit unions to increase the use of their MBL programs,” Matz toldthe audio conference attendees. “If done properly, and by that Imean with due diligence, they can be an excellent book ofbusiness.”

During the question and answer period at the end of the call,one person asked if piggy-back loans would make a comeback. A fewyears ago, the SBA offered the financing, which allowed one or morelenders to provide more than one loan to a single borrower at thesame time where the SBA guarantees the loan secured with ajunior-lien position on the assets being financed. Wade saidbecause of “the risk posed by these loans, [the SBA] can't accept asubordinate position under this scenario.” The SBA stopped theloans in 2004.

A representative from a CUSO touted the fact that none of thecommunity banks in her area were offering the SBA's AmericaRecovery Capital loans, which have a 100% guarantee, providefunding up to $35,000, are interest-free and allow deferredpayments.

“We're one of the few lenders doing them” the CUSO rep said.“The last call I got was from someone saying community banks arenot doing them. I think we need more recognition that credit unionsare doing [the ARC loans].”

Another attendee asked about the turnaround time from loansubmission to approval. Wade said, “It's always a function of howcomplete the application is” but estimated four to six days. Tiedesaid Black Hills' turnarounds have been one to two days.

–[email protected]