Businesses may soon be enticed to turn to a credit union the next time they are in need of working capital. According to reports, the National Credit Union Administration has proposed rule changes that would make it easier for credit unions to loan to businesses.
Reports said that the modifications would allow credit unions to issue corporate loans without personally guaranteeing them. The NCUA is also proposing a collateral cap and an increase to the amount an individual could borrow. The changes would be the first significant alterations to its lending rules since 2003, reports said.
The NCUA’s proposals are now under a review period before they are implemented; reports said Congressional review is not required for the new rules to take effect.
Traditionally, credit unions have been restricted in their business lending operations. One of the largest hurdles for them is a waiver process that requires any institution to apply to remove a personal guarantee requirement.
"Many credit unions have given up on serving their members’ commercial lending needs because existing limits and the waiver process prevent them being competitive,” said NCUA Vice Chairman Rick Metsger at a board meeting last month. The NCUA is now seeking to remove some of those obstacles, including the waiver system.
"It just gives us a little more latitude to personally structure a deal because the risks and the structures are all different, instead of a single playbook for every deal,” said Mark Hoffhines, senior vice president of commercial lending for Lake Michigan Credit Union, in a recent interview. “Every small business is different and every loan proposal is different."
While the changes would make it easier for credit unions to lend to businesses, not all are on board with the plan. According to reports, the Independent Community Bankers of America issued a statement following the NCUA’s proposals that rejected the venture.
"The NCUA’s proposal to expand the business-lending authority for taxpayer-subsidized credit unions would widen federal, state and local budget deficits and increase risks to our financial system while doing little to improve access to credit,” the ICBA said. “The credit union industry should not expand its business-lending authority on behalf of a handful of its largest institutions as long as it remains exempt from taxation and the CRA."
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