# Presentation: 370367

## Credit Union Participation in SBA Lending

## Presentation Objectives

- Introduce SBA Lending Programs
- Summarize Lender Application Process
- Highlight SBA Lender Requirements
- Explain Organization Structure of SBA Lending Functions
- Questions

## 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.

## SBA Lending Programs

- Section 7(a) General Business Loan Program
- Certified Development Company Program
- Section 7(m) Microloan Program

## 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

## 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.

## Lender Participants

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

## 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.

## 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.

## 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.

## 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.

## Types of 7(a) products:

- Standard General Business Loan
- SBA LowDoc loan
- SBA*Express* loan
- SBA Community*Express* program
- Export Working Capital (“EWCP”) loan
- International Trade (“IT”) loan

## Loans are processed for approval

- in a local SBA district office,
*OR*...
- in centralized loan processing Centers
- PLP
- Low Doc
- SBA*Express*
- Community*Express*

## 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.

## 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.

## 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.

## 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.

## 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.

## Centralized Functional Centers

- engaged in processing and servicing of SBA loans.
- primarily serve lenders with delegated authority.

## Available Resources

- local SBA District Offices
- SBA website (_[http://](http://www.sba.gov/)__[www.sba.gov](http://www.sba.gov/)_**)**
**SBA HQ Contact:**