From Larry Middleman, CUBG President/CEO
Today, credit unions face a unique opportunity to make major strides in the business lending market. Early in 2016, the National Credit Union Administration (NCUA) released a massive overhaul of its Member Business Lending (MBL) rule, upending the agency’s long-held “prescriptive-based” approach and introducing new, more flexible “principles-based” standards.
Highlights of the final rule include:
- Ability to waive personal guarantees
- Removal of explicit loan-to-value limits
- Lifting of limits on construction and development (C&D) loans
- Clarification that non-member business loan participations do not count against the MBL cap
- Elimination of the onerous waiver process
According to the NCUA, “it will be up to each credit union to manage MBL risks through their own policies and procedures.”
Yet, in the immortal words of Dr. Ian Malcolm (as played by Jeff Goldblum in the original Jurassic Park film), “Yeah, yeah, but your scientists were so preoccupied with whether or not they could that they didn’t stop to think if they should.”
Nowhere in the new rule is this cautionary advice more relevant than in the personal guarantee provision, which has already been implemented effective May 13, 2016 (all other provisions will go into effect on January 1, 2017).
The appropriate use of the personal guarantee waiver is among the greatest opportunities credit unions have to meaningfully connect with their business members. But it is important to use this new-found flexibility judiciously, and not simply for the sake of “being competitive” with the bank up the street. Most business loans still warrant the obtaining of personal guarantees from all owners, unless there are mitigating factors and offsetting strengths such as strong collateral positions, significant business cash flow, and a long-term track record of success.
Thanks to the NCUA’s new, more flexible approach, the new MBL rule is a tremendous opportunity for credit unions to serve members their way, in accordance with local market conditions, staff expertise and resources, and their individual tolerance for risk.
For additional questions on the new MBL regulations and how your credit union can connect with business members, contact us at info@cubg.org.
