NCUA Proposes to Boost Credit Union Business Lending
In yet another example of flouting statutory authority, the NCUA has proposed extensive changes to its business lending rules that would greatly expand federal credit unions' ability to make business loans. The agency is taking this step based on the more liberal business lending rules allowed for credit unions by several states.
A variety of loans would not be defined as business loans, even if used for a business purpose, and would not count toward the statutory cap limiting business loans to 12.25% of a credit union's assets. These include loans secured by credit union shares, deposits in another financial institution, or a primary residence. More significant are changes involving credit union service organizations (CUSOs), which would be permitted to originate business loans. At the same time, loans or loan participations purchased by a credit union from a CUSO or another credit union would not count towards the 12.25%-of-assets cap.
The proposal would also eliminate the requirement to obtain a guarantee from the principals for a business loan, and allow qualified credit unions to make unsecured business loans. Currently, all business loans must be secured.
Other Changes. The proposal would make a number of other changes designed to facilitate credit union lending. For example, the required borrower's equity in a project for a construction or development loan would be reduced from 35% to 25%. Permitted loan-to-value ratios for loans on trucks, tractors and other business vehicles would rise from 80% to 100%. Comments on the proposal will be due 60 days after publication in the Federal Register.