SBA Reinterprets Regs, Says All CUs Now Qualify

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A multi-year lobbying effort by credit unions paid off last week when the U.S. Small Business Administration agreed to reinterpret its rules to allow all credit unions to participate in the SBA's 7(a) loan guarantee program.

Previously, the SBA had interpreted its rules to require that all participants in the 7 (a) program be "open to the public," restricting credit union participation to only community charters. As a result, only 60 credit unions have been qualified for the program.

Support From Dollar

NCUA Chairman Dennis Dollar, who has been lobbying the SBA for the ruling, said the new interpretation serves as a signal by the Bush Administration that it wants to expand access to capital for small businesses. "And I am convinced that credit unions can be a significant partner with SBA in furthering that access," said Dollar.

The SBA ruling comes as credit unions are increasing their focus on business lending. Credit unions increased their member business loans by $1.2 billion last year, or 23%, to $6.6 billion, according to NCUA. Still, business lending continues to play a small role in credit union activities, with less than 2% of all credit union loans for business purposes.

The increased focus on business lending has also sparked a new conflict in some markets with banks, many of which see business lending as their special preserve. In Utah, where $29-billion Zions Bank is one of the top 10 SBA lenders, the House passed a bill last week to tax three large credit unions that have expanded into business lending. Those three credit unions-Mountain America, America First and Goldenwest-have begun making business loans through affiliated CUSOs, claiming the state credit union regulator does not have legal authority over CUSO activity. A state court has sided with the credit unions, but a new bill would bring those CUSOs back under the thumb of the state's Department of Financial Institutions.

Fred Becker, president of NAFCU, which had led the effort to open up SBA membership for credit unions, praised the regulator's decision. "NAFCU has worked exceedingly hard on this issue for a number of years and we are certainly grateful to SBA Administrator Hector Barreto, our credit unions grass roots efforts, NCUA and importantly as well several members of Congress," said Becker.

CUNA President Dan Mica, who has also been lobbying for the ruling, noted its potential impact on the nation's small businesses, many of which are depending more and more on credit unions for credit. "Today, more than 25 million small businesses operate in the U.S., creating more than 70% of the nation's new jobs. Credit unions fit right into the niche," he said.

The SBA ruling came in a legal interpretation sent to both NAFCU and CUNA which noted that the SBA did not close its doors on non-community chartered credit unions until a reinterpretation of the "open to the public" requirement 15 years ago. The phrase, though, was meant to ensure that participating lenders were not providing the government-backed loans to finance subsidiaries or other affiliates.

No Discrimination

Though the phrase may seem to be aimed at preventing lenders from discriminating against some borrowers, that was not the case, the SBA said, because all laws prohibiting discrimination already apply to SBA loans.

"Thus, any credit union, regardless of its common bond of membership, is open to the public if it is not engaged in the financing of its affiliated companies. Of course, any lender (including any credit union) that seeks to become a participating lender must still be evaluated under the provisions set forth in section 120.10 of the SBA regulations, which include a requirement that the lender have the ability to make, service and liquidate small business loans," the SBA said.

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