SALT LAKE CITY -
The venture will initially buy commercial real estate loans made under the Small Business Administration's 504 program. Once the loan pool becomes large enough it will be securitized, then sold on the secondary market, according to Bethanie Werner, vice president of credit union development for MBL. "This is a way for credit unions to get the loans off their books," said Werner.
A growing number of credit unions are expanding their business lending, which is pushing them near the federal limit on MBLs, according to Werner, referring to he 12.25% of assets MBL cap. "We're starting to hear from credit unions who are brushing up against the limit," she said.
By selling the loans to the MBL secondary market conduit the credit unions can move them off the books and provide more room for additional business lending under the cap, she explained.
The CUSO said it will purchase new and existing SBA 504 loans and pay credit unions a premium-up to 4.5% premium on new loans and up to 2% premium on existing loans, under the secondary market program.
Details On The Proposal
A 504 loan is generally secured by a senior lien from a private-sector lender covering up to 50% of the project cost, or a loan secured with a junior lien from an SBA-certified development company covering up to 40% of the cost, and a contribution of at least 10% equity from the small business being helped, according to the SBA.
Proceeds from 504 loans must be used for fixed-asset projects such as purchasing land and improvements, including existing buildings, grading, street improvements, utilities, parking lots and landscaping; construction of new facilities, or modernizing, renovating or converting existing facilities; or purchasing long-term machinery and equipment.
The 504 Program cannot be used for working capital or inventory, consolidating or repaying debt, or refinancing.
The 25 credit unions participating in MBL amount to the single largest source of credit union business lending and include some of the largest credit unions in the country. Among them are Mountain America FCU, America First FCU, First Entertainment FCU, and Hawaii FCU.
