CUs Flocking To SBA Loan Program

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Credit unions are flocking to take advantage of a three-month-old ruling expanding membership eligibility for the U.S. Small Business Administration's guaranteed loan program.

Credit union participation in the SBA program has grown 21% to a total of 92 credit unions since the first of the year with another half-dozen credit unions expected to be approved by the end of May, according to the SBA. "We have seen a substantial increase in interest," said James Hammersley, director of loans programs, for the federal agency. "It's just starting to show up in the number of credit unions qualified."

Credit union trade groups have been pushing credit unions to get more involved in member business lending the past few years but the interest in the SBA's program has mushroomed since a March ruling re-opening the guaranteed loan program to all credit unions instead of just to community charters.

"When we began talking about opening it up a bit we saw a mild increase in interest. But since then (the ruling) we have seen a substantial increase in the number of credit unions who have applied," said Hammersley.

The SBA is not actively marketing the program to credit unions, but the major credit union trade groups, CUNA and NAFCU, have spiked interest in the guaranteed loan program, he said.

The increase in credit union participation is much welcomed by the SBA because of a desire to get more capital into the hands of small, minority- or female-owned businesses, said Hammersley.

"The credit unions have access to a lot of folks out there who do not have access to or do not use traditional banking institutions," he stated.

In addition, the SBA has focused on helping to expand financial services to underserved communities, another area of credit union expertise, he added.

Under the SBA's 7a guaranteed loan program, the federal agency guarantees as much as 85% of a loan up to $150,000; and 75% of loans above that to the SBA limit of $2 million. There is a $1 million cap on the amount of a guarantee.

To qualify for the program a credit union must demonstrate an ability to originate, service and liquidate on a small business loan or have a relationship with a third-party vendor that can provide those services, according to Hammersley.

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