Credit Union Participation in SBA Lending

1. Credit Union Participation in SBA Lending

2. Presentation Objectives • Introduce SBA Lending Programs • Summarize Lender Application Process • Highlight SBA Lender Requirements • Explain Organization Structure of SBA Lending Functions • Questions

3. U.S. Small Business Administration • created in 1953 to promote small business in our domestic economy. • Executive Branch Agency headed by appointed Administrator. • serves as primary advocate for small business in the federal government. • engaged in procurement, capital formation, and small business counseling.

4. SBA Lending Programs • Section 7(a) General Business Loan Program • Certified Development Company Program • Section 7(m) Microloan Program

5. Data on Program Approvals Fiscal Year 2002 Program # of loans $ Approved 7(a) 51,666 12.2 Billion CDC 5,480 2.4 Billion Microloan 2,515 35.6 Million

6. 7(a) General Business Loan Program • provides participant lenders with partial guaranty in order to encourage lender to make loans to small businesses. • guaranty percentage generally ranges from 50-85% of loan amount approved. • guaranty portion can be sold in secondary market transaction creating liquidity for lender participant.

7. Lender Participants • Banks • Thrifts • Credit Unions • Farm Credit System members • BIDCOs and other state-regulated specialty lenders • Small Business Lending Companies (“SBLCs”)

8. SBA/Lender Agreement • SBA Form 750, Deferred Participation Agreement • establishes program terms between SBA and lender under which SBA will guaranty small business loans submitted to SBA for guaranty approval. • SBA participation is on a deferred basis…SBA funds its commitment only when a lender submits a delinquent loan to SBA for guaranty purchase. • All guaranty purchase requests subject to SBA review.

9. Credit Unions and SBA SBA believes, • Credit unions provide a unique source of community-based capital for small business development. • Because of the proximity to their members credit unions can offer direct service and support. • As credit unions grow and expand member services, they may choose to build the infrastructure necessary to support a commercial lending practice. • Credit unions provide capital in areas underserved by traditional lender participants.

10. Application for Lender Participation • scaled down to six basic elements: • Applicant’s Charter, Articles of Incorporation and By-laws [List of officers/directors also helpful]. • Written loan processing and servicing procedures. • Board resolution authorizing the filing of an SBA application. • Most recent Call Report filing. • Certification by credit union prohibiting affiliate financing. • Evidence of NCUA insurance coverage.

11. Eligibility Review • SBA evaluates an Applicant’s existing ability to analyze credit, close, disburse, service and liquidate small business loans. • SBA will consider a credit union’s experience with loans to members that were used for business purposes but were not classified as member business loans as part of this factor. • Application will be reviewed at local district office, with final decision made in Washington by SBA senior program administrator.

12. Types of 7(a) products: • Standard General Business Loan • SBA LowDoc loan • SBAExpress loan • SBA CommunityExpress program • Export Working Capital (“EWCP”) loan • International Trade (“IT”) loan

13. Loans are processed for approval in a local SBA district office, OR... in centralized loan processing Centers PLP Low Doc SBAExpress CommunityExpress

14. Key Concepts 1. SBA can only guarantee a loan if credit is not elsewhere available. • Lender certifies to this condition in the SBA loan application and should have this documented in its credit memorandum.

15. Key Concepts 2. SBA lending relies primarily on a demonstration of adequate cash-flow, with consideration to collateral coverage viewed as a secondary criteria. • Our procedures on credit analysis stress “reasonable repayment ability” based on review of historical, and/or pro forma financial statements. • Character of borrower and relevant experience should be documented. • This may increase the number of loans normally categorized as “Special Mention” in an examination.

16. Key Concepts 3. SBA credit administration procedures stress practices that are “generally accepted commercial banking standards employed by prudent lenders” [§120.453 of 13 CFR Ch.1]. • SBA expects lender participants to service and liquidate their SBA portfolio under the same processes and procedures they use to administer their conventional commercial loan portfolio. • Specific actions may require prior SBA approval, depending on the level of delegated authority extended to the lender participant.

17. SBA’s Organization Structure Headquarters - Washington, D.C. • formulates lending policies. • handles policy waivers/exception requests. • monitors loan and lender performance. • oversees secondary market activity. • prepares reports to Congress and Administrator.

18. SBA District Offices • one in each state, plus selected Branch locations. • primary delivery channel for SBA assistance to small business community. • manages relationships with local lending community, and provides guidance on SBA policy. • handles liquidation case transfers from servicing centers.

19. Centralized Functional Centers • engaged in processing and servicing of SBA loans. • primarily serve lenders with delegated authority.

20. Available Resources • local SBA District Offices • SBA website (http://www.sba.gov) • SBA HQ Contact: