NCUA Webinar: Balancing Loan Portfolios with SBA Guarantees (3/4/2015)


Kathryn Baxter: Good afternoon, everyone. Welcome to our special webcast today that we have with the
Small Business Administration in association with the National Credit Union Administration. My name is Kathryn Baxter. I’ll be your moderator today. Our host is Mr. Dominic Carullo. But before we get into the webcast today I do have a few administrative
announcements that I need to make. If you’ll focus your attention on the slide before you, please adjust your computer volume so that you can hear this webcast. If you need to resize these slides, please drag the bottom right corner. And also from this site you’ll need to allow popups. At any time during this webcast we invite
you to send a question using the Ask a Question feature that you’ll see in the left-hand corner of your console. As a matter of fact, we would appreciate it if you did send us questions throughout the webcast. And if you are aware of the person’s name who you have a question for, please address the question to that individual. Of
course, at the end of our webinar we’re going to push out to you a survey that we’d like you to do. It’s very brief. And, of course, as always, in approximately two to three weeks we will close caption this webcast for on-demand viewing. As I mentioned, we have a very interesting topic for you
today. The topic is “Balancing Member Business Loan Portfolios with SBA Guarantees. ” Our host for today’s session is going to be Mr. Dominic Carullo. So, before I turn the console over to Dominic Carullo, he’s going to give you our NCUA disclaimer as we begin our
webinar. Dom? Dominic Carullo: Thank you so much Kathryn. Once again, my name is Dominic Carullo, and it is once again my pleasure to host the Office of Small Credit Union Initiatives monthly webinar. You know, folks, I really do love credit unions. Before we get
started, we need to go through our NCUA disclaimer. This webinar is offered for informational and educational purposes only. NCUA does not endorse any particular credit union or vendor, or their employees, products or services. Now, for
your information, complete bios of all today’s speakers can be found by clicking on the Bio widget at the bottom of your screen. It is now my pleasure to introduce our distinguished webinar panel. Bill Myers is the Director
of the NCUA Office of Small Credit Union Initiatives. We have Vin Vieten. He is a Business Lending Program Officer with the NCUA Division of Exam & Insurance. I’m Dominic Carullo. I’m your host today, and I’m an Economic Development
Specialist with the NCUA Office of Small Credit Union Initiatives. Now, here are our special guests from the Small Business Administration. Linda Rusche is the SBA Director in the Office of Financial Assistance.
Ann Marie Mehlum is the SBA Associate Administrator with the Office of Capital Access. Now for today’s agenda. We will begin with opening remarks from NCUA Board Chairman Debbie Matz and SBA Administrator
Maria Contreras-Sweet. Next, Bill Myers will provide a background of credit union MBLs and some statistics. Then we’ll have Ann Marie Mehlum will discuss the SBA programs. Then Vin Vieten will give us an NCUA
perspective on business lending. Next, Linda Rusche will follow up and provide more specific information on SBA programs, then back to Vin to discuss some NCUA resources. And, finally, Kathryn Baxter will begin a
Q&A segment with questions from our audience. You ready for that Kathryn? Kathryn Baxter: I certainly am. Dominic Carullo: It is now my pleasure to introduce NCUA Board Chairman Debbie Matz. Debbie Matz: Hello. I’m Debbie Matz, NCUA Board
Chairman, and I’d like to welcome you to this joint webinar with the National Credit Union Administration and the US Small Business Administration. It’s a pleasure for me to introduce this first in our series of educational initiatives designed to aid credit unions in serving small
businesses and underserved borrowers. NCUA and SBA have entered into a memorandum of understanding that will be in effect for the next three years. Through our partnership, NCUA and SBA will produce joint educational programs, including this webinar and other webcasts. We’ll
also be providing additional training to NCUA examiners about SBA loan programs. Our goal is to increase credit union officials’ awareness of the many benefits of making business loans guaranteed by SBA. I believe partnering with SBA is good business for credit unions
seeking to diversify their loan portfolios. SBA-guaranteed loans are designed for small businesses and entrepreneurs who may have difficulty obtaining general business loans. SBA guarantees up to 90 percent of each loan with the backing of the full faith and credit of the United
States government. As a result, SBA-guaranteed loans, when managed effectively, rank among credit unions’ safest loans. And as an incentive to make more small business loans, the guaranteed portion of every SBA-backed loan does not count against the statutory cap on member business lending. I’m
very excited about the possibilities that NCUA’s partnership with SBA will bring to credit unions. Credit unions are always seeking ways to better serve their members and communities. By expanding small business lending through SBA, credit unions will develop loyal members, enrich their communities and
create jobs that further stimulate our nation’s economy. For all of these reasons, there has never been a better time to consider making SBA-guaranteed loans. Dominic Carullo: It is now my pleasure to introduce SBA Administrator Maria Contreras-Sweet. Maria
Contreras-Sweet: Hello. I’m Maria Contreras-Sweet, the Administrator of the US Small Business Administration. Welcome to our joint webinar with the National Credit Union Administration. Small businesses are the engine of the American economy. More than 7 million of the 11
million-plus jobs generated in our economic recovery have been created by small businesses. Credit unions are trusted financial institutions that have helped their members finance their homes, their cars and their children’s education. Today, credit unions are increasingly playing an important role in
providing access to business capital, too. In this webinar you will learn the steps to qualify and apply for a government guarantee through our 7(a) loan program. SBA lending is important to our economic growth, and it aligns with your nonprofit mission. It’s never been easier to work
with the SBA. We continue to take bold steps to improve our customer service and automate our loan process to make it quicker, easier and cost-effective to provide SBA-backed capital. Together with the help of our dedicated credit
union partners we’ll help the SBA stand for smart, bold and accessible for America’s entrepreneurs. Dominic Carullo: Okay, folks. It’s time now to get all our audience people out there involved with the webinar. We have a poll question.
Now, in front of you, click on the circle that pertains to your asset size. Now, if you’re not a credit union, simply click on the last circle. So we’ll give you a moment to answer this question. Wow, they’re
coming in quick here, Kathryn. Let’s refresh these, see what we have. Okay, here’s the results. It looks like the majority of the folks in the audience are with credit unions between $100 million and $500 million. We also
have a pretty good percentage of the smaller credit unions, about 15.8 percent less than $50 million, 12 percent between $50 million and $100 million. We also have 21.8 percent greater than $500 million. And about 17 percent of our audience
are not affiliated with a credit union. So that’s pretty interesting. It is now my pleasure to introduce our OSCUl Director, Bill Myers. Bill, before you start, can you please tell us a little something about yourself?
Bill Myers: Sure. Thanks, Dom. I’m Bill Myers. I’ve been the CEO of two credit unions in my career, both which were SBA lenders, and now the Director of the Office of Small Credit Union Initiatives. Our office provides for credit unions consulting, partnerships (of which SBA
is one), grants and loans, and training (this webinar is part of our training program). Member business loans are a great fit for a credit union portfolio. On the whole, the loans are larger, they’re medium term and they’re profitable loans. MBLs at
federally insured credit unions total $46 billion. The average loan at a credit union is – member business loan at a credit union is $245,000. That’s about just a little under 7 percent of our
portfolio. So it’s a substantial portion of the total credit union portfolio. Right now about a third of all credit unions offer member business
loans, and, as you can see, that number is on the rise. But, though the portfolio is profitable, the delinquency is greater and more volatile than consumers’ loans, and that introduces a need for member
business loans – SBA loans as a part of the member business loan portfolio. Dominic Carullo: Okay, Bill. Thank you very much. It’s time to get our audience involved again. We had another poll question for you. Now, if you are not a credit union, please don’t answer this question.
But if you are a credit union, does your credit union offer business loans? Now, click on the circle that best describes your credit union’s status. Well, the answers are coming in quick. Think that’s enough time, Kathryn? Kathryn Baxter: Maybe a couple more
seconds, because we have a lot of questions – answers, rather, coming in. Dominic Carullo: Yes, they’re coming in. Okay, let’s see what we have here. Okay, it looks like about 20 percent do not offer business
loans right now, but they’re certainly thinking about it. We have about 29 percent or 30 percent, they do offer business loans but –they are not affiliated with SBA. We have 5 percent, close to 6 percent of credit unions with the –
the SBA 504 program, and 10 percent in the 7(a) program. So that’s quite interesting. So we have quite a few credit unions out there that are involved with SBA and involved with business lending. At this time I’d like to introduce
Ann Marie Mehlum, from the SBA. Ann Marie, are you there? Ann Marie Mehlum: I sure am, Dominic. Dominic Carullo: Ann Marie, before we get started, can you tell us a little something about yourself? Ann Marie Mehlum: Yes, I will. And I appreciate the invitation
to join you today. I probably have a career similar to many of you on the call. I’ve been in and around lending all my life in my adult career. I started as a credit analyst and became a lending officer and a team leader and eventually a chief credit administrator, and most recently I was president and founding CEO of a
community bank in Oregon for the last 10 years. I was always an advocate and a user of SBA loan programs. I always felt it was a wonderful tool in our toolbox when we had a borrower that we just couldn’t quite underwrite conventionally. So I was delighted to join the SBA about a year and a half ago and to
help oversee and continue to improve the SBA loan guarantee programs. I’m particularly delighted to talk with all of you and to work with you all to help SBA make particularly small-dollar loans. One of the things that we’ve learned at the SBA is that our smaller dollar loans are getting into
underserved markets better than large loans, and we just need to ensure that we continue to make small-dollar loans. And we all know it’s getting difficult with economies of scale and increased regulatory burdens. So we’re working hard to make the small-dollar loans cost-effective here, and we’re really excited
about you all joining us in the effort to make SBA-guaranteed loans to our country’s small businesses. I’m just going to give you a little bit of an overview of the flagship program, the 7(a) program. This will be helpful to many of you who are not doing business with us. For those of you on the line who are – it looked like there were
quite a number, which is cool – my colleague, Linda Rusche, is going to dive a little more into the weeds when she gets on the call here in a few minutes. So, the 7(a) flagship program basically was the program that the SBA got started with back in 1953. It’s a very versatile program. It really is for almost
any legal business use. The loans that we guarantee are all made by private companies, banks and credit unions, and our role – if you go to the next slide – is to guarantee the loans. As you heard from Chairman Matz, the guarantees go up to 90 percent. Ninety percent is for our international
trade loans, and you will learn that we have some unique programs that we’re not going to talk about today. But on the loans that are up to $150,000, our guarantee is for 85 percent, and above that it’s for 75 percent. In 2014 the SBA guaranteed over $19 billion in loans in the 7(a) program, which was a record high.
And our overall portfolio right now, including the 504 loans and our disaster loans, is well over $100 billion. So if you go to the next slide, to be eligible to be a borrower in the program you really need to just be an operating company organized for profit in this country and be a small
company, as we define in our regulatory statutes. We’ve provided that information there for you. And the other thing is that the loan that you’re applying for really needs to be one that you can’t obtain conventional financing for. We refer to it as – it must meet the credit elsewhere test.
So these are supposed to be loans that you couldn’t normally make without the SBA guarantee or some other way to strengthen the loan. In terms of use of proceeds, on the next slide, again you can see that almost anything is eligible that a small business would need to finance:
purchasing machinery, expansion, construction, working capital, just really anything – almost anything. It’s a very, very versatile program. If you go to the next slide you’ll see a little bit about credit standards. SBA allows you to utilize
pretty much your own credit criteria on small loans. And these are very common credit standards that I will be surprised if they don’t already exist in your business loan programs. You need to have a business plan. You need to make sure
there’s adequate equity, sufficient cash flow, and basically you’re evaluating the borrower’s ability to repay the loan. On the next slide there’s a few more standards there, again, pretty common sense business credit standards – management expertise, business owners’ character and credit and sufficient
collateral. However, SBA really is a cash flow lender, and the cash flow ability to repay is the most important element in credit criteria. Just a couple of benefits on the final slide that I have. In addition to the 85 percent guarantee on your loans, which is a good benefit for the lender, there are some other benefits to the
program. And I mentioned utilizing your own underwriting policies. Especially on the small loans we really allow you to use your own policies, because we want it to be easy. We don’t want to imply a whole new program. You’re not going to think it’s easy when you look at the SOP, but it is on the small loans.
And we also use a credit score. We have a business credit score on all loans under $350,000, so that will make it easier for you, as well. We don’t require any collateral on loans up to $25,000. At this point we’re looking at also making that a little larger, but as of today up to $25,000 you don’t have to take any
collateral. And another feature that I just wanted to mention is there is a pretty robust secondary market for 7(a) guaranteed loans. So if you do these loans it’s a nice balance sheet tool for monitoring liquidity and balance sheet risk. So with that, Dominic, I will turn it back over to you. Dominic Carullo: All right.
Well, thank you. At this time I’m going to turn it actually over to Vin. Vin, tell us a little bit – tell us a little something about yourself and then take over. Vin Vieten: Okay. Well, thank you, Dom. I joined NCUA in 2010 as the MBL Program Officer. Prior to joining the
agency I spent 27 years as a banker and commercial lender in New England working for large regional banks and as a senior loan officer managing the loan department in two community banks. Today I want to spend a few minutes providing an overview of the critical and
necessary components for an effective MBL program. It starts with a competent staff, a staff that should be responsible risk managers, experienced in evaluating and identifying commercial risk. Rule 723 requires two years’ experience,
but I recommend that that experience be from evaluating and managing the risks of a portfolio, because a well-trained risk manager has the skills to identify the member’s borrowing needs and be able to determine the borrower’s
financial ability to ensure the borrower receives a financing package that meets their needs and within the financial capacity of the borrower to repay. A well-structured department will have a defined risk assessment
process. The process should ensure that there is an in-depth and consistent evaluation of the borrower. The policy should address the components of the credit approval document, the required financial information, both for the period of time to
be evaluated and the quality of the information to be used in assessing the financial condition of the borrower, and the principles of the borrower. The quality of the information required should be reflective of the level of debt exposure to the credit union and the complexity of the borrowing relationship.
Generally, tax returns and a personal financial statement are sufficient information for straightforward smaller loan relationships, and for larger, more complex relationships they require a higher level of assurance for accuracy by the preparer and should be either of review or audited
financial quality. The financial analysis should be sufficient to recognize the financial trends of the business and the likelihood of those trends continuing. The credit proposal should contain all necessary information for the approving authority to make
a fully informed decision. Also, in Ann Marie’s presentation, the credit evaluation slides provide a very good outline of the risk assessment process for those credit unions that are now currently providing member business loans
and for any credit union considering providing member business loans. The credit union board and the senior management should know the level of risk associated with each loan and the overall portfolio. Ultimately, the board is responsible for the financial
condition of the credit union, and a major influence on the financial condition is the quality of the loan portfolio. The credit risk process should be able to identify the level of risk and that level of risk be reported to the board of the credit union and usually done through
a reliable credit risk rating system. The system should have risk classifications that are well defined and rate the risk from low to high. The risk grade should consider both qualitative factors such as market influences on the borrower, management changes to the
borrower, and quantitative factors, such as the profitability of the borrower, leverage of the borrower and debt coverage, just to name a few. The risk grades should be assigned at the loan inception, when the loan is originally made, and then reviewed
periodically through the life of the loan through an active risk monitoring process. An active risk monitoring system is important, because the risk associated with commercial loans is dynamic and can change based on changes in the market conditions and in the
borrower’s operation. Therefore, the credit union should have in place procedures and requirements to monitor the risk by requiring regular financial reporting by the borrower and regular site visits by the lender to ensure the operation is functioning appropriately. It’s
recommended that the credit union perform and require in its policy that the borrowing relationships be reviewed on an annual basis when the annual financial statement is delivered. The annual review should evaluate changes in the borrower’s operation and financial condition
and reassign the risk grade based on the current circumstances. Finally, to ensure that the process is working, the board should test the reliability and accuracy of the risk management process by requiring periodic loan reviews. The individuals performing the reviews should be
independent of the loan approval process. Generally, loan review is provided by a third party and prepared for the senior management and board. The review should evaluate and report compliance with lending procedure, policies – compliance with the lending procedures, policies and regs; identify
practices and procedure improvements; evaluate the risk grade accuracy and the overall quality of the loan portfolio. It should also address any specific concerns identified by the board. Before I turn the presentation back to Dominic, I’d like to comment that
over the many years of lending that I was in lending money, I was able to utilize the SBA’s support often, and with the SBA participation able to assist many small businesses, and many of those still operating today. I encourage all of you that offer MBLs to develop a
relationship with your local SBA representative, who can be helpful in determining which SBA program is a fit for your borrower. Okay, Dominic, it’s all yours. Dominic Carullo: All right, Vin. Thank you. Okay, we have another poll question here. Please click on the circle which best describes your answer. If
you’re not a credit union out there, just click on N/A. And we’ll just give you a few moments to answer this question. Kathryn Baxter: So, Dom, while we’re giving our attendees opportunity to answer the question, I just wanted to inform our listeners that if you’d like to download the slides, there is a green folder widget at the bottom of your
console. If you click on that you’ll be able to print the slides and you’ll also have access to the bios for all of our speakers today. Dominic Carullo: Oh, excellent. And don’t forget to send us your questions, because they’re coming in now, and we’d really like to answer
your questions. So type them in and hit the Send button. Okay, let’s see what we have here. Does your credit union currently communicate with an SBA District Office? You know what’s really curious here
is that 13 percent of you do very often, and about 26, 27 percent of you do but not as regularly as you might. So we do encourage you, those credit unions out there that have questions and want to get into the
SBA program or who are already in the program, work with your District Office. They’re there to help. Now I’d like to turn the mike over to Linda Rusche from the SBA. Linda, are you there? Linda Rusche: Yes. Dominic Carullo: Linda, before you get started, do
you want to tell us a little something about yourself? Linda Rusche: Thank you. I’m Linda Rusche, and as a long-time member of the Small Business Administration I have worked with borrowers as a loan officer, as a program manager, and I presently am the Director of the office that is responsible for writing
the loan policy for our programs. So today I would like to bring you some specific details about the 7(a) loan program, and hopefully that will pique the interest so that that 42 percent of you who haven’t talked to our districts find a good reason to give them a call and find out more about this
program. The slide that you’re seeing now is a little bit of a nutshell approach, something you might want to paste on your board at your desk. It gives you the very specifics that are important to think about as you start considering an MBL of a small amount for one of your customers.
We’re focusing today on the small loans. We, SBA, define small as $350,000 or less in the 7(a) program, but we are most strongly emphasizing the $50,000 or less, which is a great place for you to get started, because the risk issues of those are very
minimal to your capital position. For loans less than $50,000, we, SBA, can provide an 85 percent guarantee on the risk, on the exposure. So a full 85 percent of that loan you’re making is covered by a potential guarantee from the SBA should something happen to the
business and they be unable to pay the loan. As you can see, the gradient of guarantee reduces a little as the loan grows larger. And as that box also points out and we consistently provide and reinforce, credit scoring is an option for loans of this small size,
our credit scoring system, which we make available to you. We actually have a system by which you become accessible to our credit scoring by entering your information into our loan processing system. We have also made available to you the credit
validation of that credit score for those of you who are working with your regulators. The second column points out the basic terms and pricing on these small loans, up to 10 years for working capital, machinery and equipment, and up to 25 years for real estate, with
a blended maturity if you have some of each. We allow prime plus two and up to three-quarters for loans of over seven years, and for those very smallest of loans, like the $50,000 or less that we’re talking about today, you can actually even increase that rate by a couple of percentage
points. You may also float the rate. So most SBA loans have a floating rate, where every quarter the rate changes in accordance with prime, although we’ve been in a pretty stable prime rate market for the last few years. Of course, no one can predict whether that will continue. The final column addresses
a little bit of the cost issue of the loan to you, the lender. There is an upfront, one-time guarantee fee when SBA concurs with your request for a loan guarantee. And generally it’s anywhere from 2 to almost 4 percent of the guaranteed part of the loan.
However, if you flip to the next slide and take a peek at it, you’ll notice that presently the upfront fee is at a zero basis for loans of $150,000. SBA has been able to bring this feature to the program for this
fiscal year to reduce the cost to the lender of making these smallest loans and therefore enhancing our ability to promote additional lending in this market. There is also a basis point fee, we call it the Annual Service Fee,
and it, too, is presently at zero for this fiscal year for small loans. In this manner, SBA is recognizing the need to bring smaller loans to small businesses and that the cost of booking a loan is the same whether you book a large or a small loan. So we
are hoping and expecting this enhancement will increase our small loan volume, and in fact it has. Now, the next slide also identifies that we have also provided some additional fee relief this year for loans to veterans, those in the service or recently discharged, who have served our country
honorably and who now are in a position to look for their next career, for which we hope that we can assist them in making that a small business entrepreneurial career. If these details have somewhat piqued your interest, starting with the next slide let us give you some information on how
you start the process to become a lender with the SBA. Any of the credit unions that have share insurance simply need to send a written request to the local SBA field office, that District Office we’ve been talking about earlier, that field office in the area where the principal
office of your credit union is located. And it includes some basic information about your financial condition, that is, your capital and liquidity; your small business credit admin policies; your small business servicing procedures, practices and policies; and basically who is in the management
control of your business, your credit union. To find the specific District Office that would be most applicable to your location, all you need to do is go to www. sba. gov, where you can find that location. At each of those districts, as the next
slide points out, you will find that District Offices have Lender Relationship Specialists which can assist you in answering questions and providing additional information. The District Office will assist you in compiling your information and also
assist you in understanding that there is a basic agreement you must execute with SBA before you start making loans. That agreement is a 750 by number. All it is is the basic two-page list of your duties and responsibilities and SBA’s duties and responsibilities. By
the next slide you’ll see that this is simply a basic master agreement, and it establishes the relationship on a contractual basis. Once countersigned by the District Director of your local district along with you, you are ready to go and you are ready to make loans.
I would also point out from this slide that we have levels of participation, and we’re providing you information on the most basic level. As you become more familiar and more fluent with SBA lending, there are delegations of increased authority that SBA can consider
providing to you upon your request to us that will allow you to receive even quicker turnaround time and more efficient processing of your loans, which, of course, again, time being money, reduces the cost for you in booking MBLs to your customers. I would also like to mention
on the next slide that there is an ongoing reporting requirement for those of you who have or are thinking about having an SBA portfolio. Any lender participating in our 7(a) loan program collect payment and loan information and report it to us on a monthly basis via our what we call
Form 1502. Now, that’s a paper form, but you can submit by paper, by web, by electronic, and it’s a very convenient way for you once a month to submit to our Fiscal and Transfer Agent, who on our behalf collects the information and compiles it so that we, SBA, are aware on
an ongoing basis of the nature of our portfolio among all our several thousand lenders throughout the country. If that sounds a little daunting to you, by the next slide I would like to point out there are multiple sources to receive help in both getting
involved with SBA, getting the 750 booked, helping the loans get booked and reporting on the loans you have on your books. Not only is SBA able and ready and willing to help you, but there are various service organizations and there are trade organizations and associations can
assist you in the requirements of getting started and of the continual reporting. Next slide. Just because we are the government, we do have a multitude of resources and references that support and establish the rules for this program. We have provided them to you here in live
links, so that if you obtain the download of PowerPoint you should be able to easily obtain those resource information. I highly recommend the one that’s right there in the middle, www. sba. gov/for-lenders. That is literally the place where you can find the answer to virtually
every question you might have about how to get the relationship started, how to book a loan and how to service the loan. So I strongly recommend each of you go give that a little spin and see what you think. Final slide that I wanted to talk about is we also have program
contacts listed for you for loan origination, loan approval servicing and liquidation, lender oversight – we, too, have credit risk management, and we look at your institutions periodically, and our loan accounting systems, so that if you have a burning question and you would like to know the answer
to that, you can either email or phone us here at headquarters, and if we can provide you the information or refer you to the source where you need to go, we can provide that to you. With that, I will turn it back. Dominic Carullo: All right, Linda. Thank you so much. Very nice job. I’d
like to turn it over to Vin now, who will talk about some of the NCUA business loan references. Vin Vieten: Okay, thank you, Dominic. As part of our partnership with the SBA, we developed a web page for shared resources. The slide in front of you shows the address.
Now, earlier Kathryn recommended that you download these slides. As you can see, the previous slides had a lot of reference numbers, and this address I think you’ll be interested in searching later on. So I’d recommend if you have not downloaded the
slides to download them now. And on that – on the website you’ll see links to NCUA Rules and Regulations. You’ll see links to important Supervisory Letters and also links to a number of SBA lending resources. We didn’t include all of them,
but I think if you click on the SBA resources it’ll direct you to their website, and from there you’ll be able to discover other help. So, as I said, I’d recommend that you all take some time and review the website. Back to you, Dom. Dominic Carullo:
Okay. And here we have a picture of the website. So, just for your reference, this is a picture of the website. Okay, we at OSCUl have a cool new link on our OSCUl website. Our Credit Union Service Providers portal, also known as CUSP,
provides credit unions a quick way to comprehensively identify potential vendors by service type. CUSP provides no ratings, no endorsements and no user feedback, but it is free to both vendors and to credit
unions. This slide provides you with more information about our CUSP. For additional information please visit our website. The link to this site is actually on this slide. I can’t say this enough,Please note that CUSP is not a vendor
referral list or an endorsement of any vendor. Credit unions must still perform appropriate and adequate due diligence before engaging in any vendor. And also, for those of you vendors out there, and I think we do have some out there in our audience, if
you are interested in registering with CUSP, please visit the site. The site will provide additional information on how you can get the name of your organization on the list. Now, we at NCUA do not maintain the database for this, just to let you know. The
database is administered and maintained by the General Service Administration. Okay, a public service announcement here. We host webinars every month, and here is the listing of all our upcoming webinars through December 16. We have some pretty interesting
ones here. I would strongly recommend if you see one in here or see several in here that you would like to attend, please mark your calendars. And this slide will be available
with the rest of the slides. Okay, before we go any further, I want you to be aware of a terrific new search engine on our OSCUl website. FAQ+ is designed to serve the
credit union community by directing users towards resources on subjects of their choosing. Links and other resources on this site may direct the user to sources housed on NCUA’s site or may direct users to sites outside of the NCUA which are not
controlled or maintained by the NCUA. Also, if you have further questions about business loans as they relate to the NCUA, here is the contact information for the NCUA Office of Examination and Insurance. Now, with that, I’m
going to turn the webinar over to Kathryn for our Q&A segment. Kathryn Baxter: Okay, thank you, Dom. So we’d like everyone to stay on the line. What I’m getting ready to do right now is to push out a survey to our audience. And I’d like you
to take just a few seconds to do that before we jump into our Q&A. So I want to ask, too, as the SBA team, are you ready for these questions? Ann Marie Mehlum: Yes, we are. Kathryn Baxter: Well, you’ve got a lot of them, so here we go. I think I’m going to
start you off with one that’s maybe a little easy. Okay, here’s a question from a credit union. It’s question No. 31. The questioner asks can the fee for 7(a) be added to the loan – into the loan? Linda Rusche: I can answer
that. This is Linda. The upfront fee once paid by the credit union may then be assessed back to the customer as other booking fees are. The ongoing annual service fee must be paid by the credit union
and cannot be charged back to the small business customer. Kathryn Baxter: All right. Excellent. So stay on the line. Here’s another one. We have question No. 23. So this question is going to deal with the type of businesses
that can qualify for SBA lending. The question is do loans for gas stations and bars qualify for SBA lending? Linda Rusche: Each of those types of businesses are eligible. There are specific nuances prudent to lending to specific types of businesses that would apply.
For a gas station there are environmental considerations and assessments that must be done. For a bar you would probably have some form of special licensing necessary in the jurisdiction where that bar is located. But as a small business domestically
operating for profit, they are eligible. Kathryn Baxter: Very good. So now let’s give Bill Myers a question. He looks lonely. Question No. 5 for you, Bill. I think in your presentation you mentioned something about a $245,000 loan. So the
question is here for the average loan size of $245,000, does this include commercial and industrial and commercial real estate loans? Bill Myers: Yes, that’s the whole portfolio. If you separated it out, only the SBA portion of that portfolio, the
average size drops to $145,000. So our – the portfolio of NCUA member business loans is smaller on $145,000. So, as we heard earlier from Ms. Rusche, all those loans at this point are guaranteed without a fee, which is – usually we don’t do specials here, but
that’s a great deal. Kathryn Baxter: Okay, fantastic. Vin, you had a question, too, all right? Question No. 16. So I think the questioner asks this. Question 16, did the speaker just say financial statements should be review or audit quality? Vin Vieten:
Thank you for that question. I’m glad – probably – what we were saying is that the level – the risk assessment should be based on reliable information. The level of risk associated with a transaction is reflected in the complexity of the transaction
along with the size of the transaction. We’re not saying it should be reviewed, but we think policy should address the levels of when a higher level and higher quality of financial information is necessary. I also said that for the simple, straightforward tax returns
and personal financial statements are generally sufficient. But there is a point, due to the complexity, the interrelation between the principal’s operations, where you may want to consider getting a higher level of preparer review, such as a review or audit. But that
should be an internal discussion, and it should be discussed in the policy. Kathryn Baxter: Okay, thanks, Vin. So now let’s jump the ball back to the SBA team. We have question No. 22. So here’s what the credit union asks. They said what is the average turnaround time for a 7(a)
loan from submission to decision? Linda Rusche: For the loans of $350,000 or less, which is the market that we’re talking about here, we’re averaging in the neighborhood of 10 to 15 days turnaround time if you are not a delegated lender. However, if you submit a very small
loan and you use our credit scoring system, that will quicken the turnaround time. And if you become so fluent as to become a delegated lender with SBA, you literally have the jurisdiction to approve the credit loan, and turnaround is virtually instantaneous with our E-Tran system.
We are also working towards a product later this year called SBA One that will make a much easier platform for you to interface with our electronic system. That will also reduce turn times. Kathryn Baxter: Fantastic. So we have a couple of questions
here in the queue that have to do with taxi medallion lending. So I’m going to give you question No. 35. So the questioner asks, are taxi medallion loans suitable for SBA lending? Linda Rusche: My interpretation of this question is will we make
a loan to someone to purchase or pay for the price of the medallion to operate as a taxi driver, and the answer to that would be depending on credit circumstances, dependent upon the character of the borrower and the credit of the borrower, yes, we – that would be essentially purchasing a license
to do business, much like the bar, the question. You must have a liquor license before you can be a restaurant that also serves liquor or has a bar. So, yes, that’s a form of eligible small business, again, depending on the circumstances of the jurisdiction. Kathryn Baxter: Okay, fantastic. Here is a
good question, too. The credit union wants to know – this is question No. 50- the credit union wants to know about denials due to documentation error. So they want to know if you have any stats on the percentage of SBA guarantee denials due to documentation errors by credit
unions. Linda Rusche: We don’t have those statistics at our fingertips today. Our basic, what shall I say, default rate is very, very low. Ann Marie Mehlum: I don’t think we have those numbers, but we certainly could get them. This is Ann Marie again. I think that oftentimes what happens in the loan
center with loans that come in is it kind of goes back and forth and we – and the loan center tries to work on ways to get to a yes on the guarantee, so sometimes it might just take longer. But I don’t know that denial number. We can certainly get that for you. We can send that over to you, Bill. Kathryn Baxter:
Sounds good. So I said we have a lot of questions for the SBA team, and we really do. So here’s another one. Question No. 27, here’s a good question from the credit union. They said the variable rates that you are listing are the maximum and not the required, is that correct?
Linda Rusche: That is correct. We specify the maximum limit, but we certainly don’t require that you charge that maximum limit. Beyond the maximums we allow you to charge, you have the ability to negotiate a smaller one with your customer. Kathryn Baxter: Okay, here’s another
one. This involves asset-based loans. Question No. 25, can you please tell me or let me know if asset-based loans are eligible for SBA financing? Linda Rusche: We have a particular program called CAPlines that we can assist you in becoming involved in asset-based lending. But we
recognize that asset-based lending is a fairly high-touch type of lending, so there are certain changes and differences to that kind of a, quite frankly, revolving credit which sometimes makes it a fairly expensive delivery product. But yes, we can – again, we call it CAPlines, and I would recommend
that you connect with your local SBA District Office to learn more about our CAPlines asset-based lending product. Kathryn Baxter: Fantastic. Here’s another very good question that we have. The credit union or the submitter, rather, wants you to talk a little bit about some of your other loan programs,
504 microloans, and they’re interested in whether the SBA may bring back some of the Recovery Act programs or the veteran loan programs. Can you address that? Question 4. Linda Rusche: We presently have a 504 loan product, and just in general terms that is delivered through a first mortgage lender, which
could be a credit union, paired with a certified development company providing a second position piece of the financing, and then a borrower contribution. That program is for fixed asset financing. Usually real estate’s involved, but at minimum sizable equipment and asset purchases. Those
loans can be quite sizable, as well, up to $5 million. We also have in our smaller loan product a couple of interesting availabilities. We have microloans. Those are not actually loans made by the Small Business Administration. We have a cadre of
micro lenders, approximately 150 throughout the nation, several in each state. SBA provides them a bulk of funding, and those micro lenders relend to micro businesses. $25,000 is – I’m sorry, $50,000 is the maximum for
a microloan. And, again, that’s not directly guaranteed by the SBA. It is provided by the micro lender intermediary. And then most recently we have developed a pilot program of Community Advantage, where
we are assisting CDFIs and CDCs to provide very small loans in areas primarily that are underserved markets. Again, those are very small loans, and they have a fairly high touch requirement, and we do provide a slightly higher interest rate for them. So,
while a credit union would not be directly eligible to become involved in a Community Advantage loan or a microloan, certainly a credit union could be part of the package of a 504 project. Kathryn Baxter: All right, fantastic. Here we have a couple of other questions
along the same line. Question No. 6, the credit union wants to know what’s considered a small loan. What is the dollar threshold for a small loan? Linda Rusche: The SBA’s definition of a small loan technically is $350,000, and that’s where we have a breakpoint in
credit considerations and collateral requirements. So anything that your credit union would be providing $50,000 or less would be well within our rules of what is viewed as a small loan. Kathryn Baxter: Okay. So earlier there was a question about the time frame in order
to disburse a 7(a) loan. So here’s a follow-up question to that. Are there any recourse provisions? This is question No. 8. Linda Rusche: Are there any – Kathryn Baxter: Recourse? Ann Marie Mehlum: If the loan gets denied? Linda Rusche: We can
only presume that the ask is what happens if I’m turned down, if my customer is turned down for a loan? We do allow reconsideration if facts can be altered, changed, corrected. We always, if we turn down a loan request, provide a decline letter to identify to
the credit union why the turndown occurred – a credit reason, a character reason. So you can request reconsideration. Beyond that, if recourse is intended to mean something else in that question, we’re not sure what that is. So maybe the person asking the question could ask a follow-on that might come
in. Kathryn Baxter: Okay, we’ll look for that. Here’s another question from a credit union, question No. 54. The credit union wants to know how to become a delegated lender. Linda Rusche: To become a delegated lender a credit union must have made at least five regular SBA 7(a) loans in the last 24 months and
must request from their district office training regarding how to become more fluent and up to speed with making those decisions, both credit and eligibility. Once that occurs an application is sent to our headquarters office, and in most instances we approve those
delegations in a short order and you become a delegated lender with the ability to book the loans directly. If you want to become an express lender, which is a slightly different category of delegation, you must have done at least 20 commercial loans, but you do not have to have done any
SBA loans directly. So, again, I refer you back to your District Office. There are several types of lending. You can be a regular 7(a) lender, you can be an SBA Express Lender, you can be a Preferred Lender, all of which have different levels of authority and size of loan. Ann Marie Mehlum: I’d like to jump in on this one,
too. This is Ann Marie. I’d really like to encourage credit unions that are going to be making loans to really consider delegated lender authority, because it makes it so much easier and quicker for you. It’s also good for the SBA. It makes it easier for us. We do have a center – we have nine operating centers, but the center
that approves these loans out in Sacramento, sometime when we get deluged it’s hard to have quick turnaround times. We try and do 10 days on loans under $350,000, but sometimes it stretches out to 15 or 20 days if there’s a lot of business. So if you know what you’re doing and you know that you’re going to make 10 or 12 or
20 SBA loans a year, I would really highly encourage you to investigate delegated lending authority and do it that way. It’ll be easier on you and your customers. Kathryn Baxter: Okay, fantastic. So now here’s a little bit of a different question from a credit union, question No. 9. They want you to define eligible
business debt within the context of refinancing. Linda Rusche: That’s a really good question, because it comes up a lot, and there’s a lot of different takes on that. When we say eligible business debt, we are requiring the business to demonstrate that the debt being requested to be refinanced
must have been used for the business. We do have some parameters whereby we can recognize personal credit card debt that’s been obtained is truly by proof of the use of that proceeds to have been used for the business. And particularly if you have a proprietorship, a DBA, it’s very
hard to tell the difference between personal and business. So we have criteria by which we can identify and allow even certain personal debts to be wrapped into a debt refinancing. SBA also has rules regarding debt refinancing, and we do so to ensure that loans in a position
to sustain a loss don’t end up being transferred to the government guarantee. So eligible business debt is that debt that was used for the purpose of the business, either startup or operating, but sometimes it can actually be in the name of the individual as we
incorporate it into the business. Kathryn Baxter: Okay. Let’s change it up a little bit here. Here’s a very good question, question No. 47. The credit union wants to know can I upload and submit the completed application and other SBA forms to E-Tran before
the tax returns requested in Form 4506-T have been received by the IRS. Linda Rusche: That’s actually a two-part answer. If you as a lender are a delegated lender, you need to have that 4506-T in your possession before you disburse on the loan. But if you are
not a delegated lender, you are required to have that 4506-T in your possession and affirm the financials are valid before you submit the loan – again, another streamlining opportunity if you’re delegated, where you have just a little more time relative to the requirement. And for those
of you who don’t know what a 4506-T is, SBA has requirements that the financial information upon which the loan is being based must be verified back to the IRS. The 4506-T is a document whereby your borrower signs and gives you, the credit union, permission to access IRS’s
automatic database and receive selected information about the past several years’ tax returns that allows you to help verify sales volume, net profit and other key indicators like depreciation or officer salaries, if it’s a corporation. And
4506-T’s are required of any business that’s in existence and upon which the basis of repayment is the past operations of the business. Kathryn Baxter: All right. We have another question, and then I’m going to give a question to the NCUA team, because they
feel lonely at this point. So here’s a question from a credit union, question No. 60. And you may have already answered this, but let’s ask it anyway. How many SBA loans does a credit union need to make each year to keep its delegated authority? Linda Rusche:
Actually the entrance requirement for PLP is five SBA loans. Once you are delegated we would expect you to make sufficient loans per year to remain fluent in the processes, but there is not a specific standard for X number of loans per year. I would like to clarify that
if you’re considering Express status, which is for loans of $350,000 or less, where you use – basically most of the loans you’ll making in the $50,000 category will end up being express, you can become Express by requesting it immediately in becoming engaged with
SBA. There’s no wait time of X number of SBA loans. You may request to become a 750 lender and an Express lender concurrently as long as you can demonstrate you have made at least 20 other MBLs on your books at that time. So a good
way to get introduced to the SBA product is to come in as a 7(a) and Express lender. Kathryn Baxter: Okay, fantastic. I have a question for the NCUA team. Question 18, as a matter of fact, I think Bill passed it off to Vin. So, Vin, here’s your question.
When should independent loan review be done – they just started lending in July – and what’s the portfolio size? Vin Vieten: Well, thanks for the question. I think if you’re new to lending it’s probably a wise practice to have
the process reviewed once you build a certain size. As far as a specific number for the portfolio, that’s difficult, because it should be in relation to the size of your credit union, the level of risk the portfolio presents to the
credit union. But as a good practice I think when you build a reasonable number of loans it would be wise to have an independent authority evaluate the quality of the process. Kathryn Baxter: Okay. And now we have a question for Bill. Bill, this is question 57, and the question
is, what if the credit union is a certified CDFI, then could they do the program you just talked about? Bill Myers: We’re referring to 504 program, and I’m going to pass part of it back to Ann Marie. There’s 200 CDFI-certified credit unions, and I assume because CDFIs are eligible,
they’re eligible for the Community Advantage, I’m sorry, Community Advantage program, I assume because they’re certified CDFIs they’re eligible in the same way because of that qualification. Linda Rusche: Actually, the basic parameter for Community Advantage is that it is
for eligible CDFIs that are not already in the 7(a) program. So if you’re not doing anything with SBA right now, you might want to consider requesting to be a Community Advantage lender instead of a regular 7(a) lender. And our contact point for that in headquarters
is Grady Hedgespeth, and he can provide additional information, or someone on his staff. Or you can email any one of us on that contact list and ask to speak to the Community Advantage expert and we will shift it right over to Grady and his staff.
Kathryn Baxter: Okay, thank you. So now we have another question. I think this is going to go back to the SBA team. Question no. 48, here’s the question from the credit union. For SBA loans over $100,000, does a credit union have to meet general
collateral requirements? So in other words, can they offer SBA loans, over-secured only, by general company assets? Linda Rusche: We have a standard of collateral that is – covers up to loans of $350,000 in size, and presently that
standard is that we require what the loan is financing plus a general lien on fixed assets. So up to $350,000, that’s the requirement. The $100,000 would obviously well fit into that. I would also point out that for the very, very smallest of loans – for us
that means $25,000 or less – we can allow you to make an MBL for $25,000 or less, guaranteed 85 percent, unsecured. We have recognized that the cost of liquidating collateral in a very, very small credit of that size is probably very minimal, and therefore we
allow up to $25,000 to be done completely unsecured, except for the business owner’s signature, of course, personal guarantee. Kathryn Baxter: So we have another credit union that wants to get some resources. Question 51, any slides or resources on the SBA 504 program? Linda Rusche:
Well, actually, we have all kinds of information we can provide you on the 504 program. We do, however, do those sometimes in different venues. May I suggest that you connect with your District Office and they can connect you with the information, or the local certified development companies in your area? Because you will
have to be participating with a CDC, certified development company, and, depending on where you are, that could be anywhere from one to several CDCs available. Talk to your District Office and they can provide you all of the available CDCs. And from there the CDCs will also help you walk through that process, as
well. Kathryn Baxter: Okay. Got another question for you, question No. 63. The credit union wants to know can you make SBA loans on startup companies, and is there a requirement for a certain number of years in business to make the loan? Linda Rusche: There is no specific requirement
for number of years. We make many startup business loans. In fact, that is often the time why the lender comes to SBA. The risk of a startup business is obviously greater than the risk for one that has a track record. And our guarantee can provide valuable risk mitigation
to the credit union if they have a viable business plan from someone who is acquainted with and a good – demonstrating good management knowledge of how to do business in that type of field. Kathryn Baxter: Okay, very good. Let’s see what we have here.
We have quite a few questions still for the SBA. One credit union has this question. It’s question No. 30. It’s in regard to the guarantee fee. They said do you see the possibility of the guarantee fee being extended past 9/30/15? Linda
Rusche: SBA has proposed as part of the budget submitted forward that the same fee waivers that we presently have will continue into 2016. Of course, that’s not finalized at this moment in time, but it is what we have proposed. We are seeing good performance in our
portfolio, and that’s a strong piece of that consideration. Kathryn Baxter: Okay. We have another question, question No. 11. So the credit union wants to know what is the current understanding of what sufficient equity is? What is the minimum percentage? Linda Rusche: SBA does
not have a specific minimum percentage or minimum investment required for the 7(a) loan program. Sufficient equity in the very basic credit sense is the amount of dollars that creates a stable business credit situation. And also we all know that the more equity the fewer dollars that
must be borrowed. So it’s a balancing act. People can say rule of thumb 30 percent, three to one. But at the end of the day the SBA rules do not have a specific number. What we do require is that the credit union assess that the business is stable with the equity as it exists
and then that the debt is sufficiently of size that can be reasonably serviced. The answer for that question would be different in the 504 program. In the 504 program there are specific requirements for anywhere from 10 up to 20 percent equity investment on the part
of the borrower, which we call borrower contribution. So the answer is different whether you’re talking 7(a) versus 504 programs. Kathryn Baxter: Okay. Let’s keep going. Question 67, here is what the credit union wants to know. When we get a personal guarantee, do all owners
of an LLC have to personally guarantee? Do all owners of an LLC have to be borrowers? Linda Rusche: This is an excellent opportunity for me to clarify that the loan SBA is considering, while we’re talking MBL, SBA is making the loan, with your credit union cooperation, to
the company. We make loans to businesses. We don’t make loans to personal individuals, except in the DBA, doing business as, sense. So an LLC being a rather specific type of business structure would require that any owner of more than 20 percent of
that LLC personally guarantee the loan. The general threshold for personal guarantee is all parties who own 20 or more percent in the business. Between 5 and 19 percent we generally look for a pro rata, and below 5 percent proportion generally we don’t ask
for a personal guarantee. All of those I couch with the word “generally,” because every case is very specific. But you can generally keep in mind any owner of more than 20 percent of the business would be expected to fully personally guarantee the loan, because the loan is made to the
business. Kathryn Baxter: Okay. Got some other great questions that we have coming in here. Okay, let’s do question No. 33. I really should have asked you when we were talking about the fee, because this credit union wants to know a little bit more about the fee. They say if the ongoing servicing fee is
waived in 2015, will the loan originated in that year always be waived? Also, does the Express program qualify for the waived servicing fee and guarantee fee in 2015? Linda Rusche: Yes, and maybe. For the first half of that question, yes. If the fee is waived, if the loan is booked in 2015, it qualifies for that
provision for the life of the loan. So that ongoing servicing fee will be waived for the life of the loan. The second half of the question relates more to the size of the loan. The fee waiver is for loans of $150,000 or less. Express loans can actually go as large as
$350,000. So if it is an Express loan smaller than $150,000, yes, the fee waiver applies. Greater than that amount, it does not, unless the business is owned by a veteran, and then there are some additional provisions, as I mentioned. Kathryn Baxter: Okay. On the same line, this is a
question regarding the veteran SBA loans. The credit union wants to know, question 32, the credit union wants to know, for veteran SBA loans, does the prospective borrower have to have an honorable discharge? What if they have a general discharge or are medically discharged? Linda Rusche: That’s an excellent
question. Any discharge other than dishonorable would qualify the veteran. And we have an extended veteran definition that includes spouses, disabled and reservists. So you want to ensure that your customers understand it’s not just the veteran him or
herself but also some extended veteran connections through marital or dependency relationships. And you can, again, at your District Office, get that very specific definition, or you can go to the SBA.gov/for-lenders and follow links to the veteran benefit notice.
Kathryn Baxter: Okay. So while we’re talking about the Veterans Advantage, here’s another question, question 65. The credit union wants to know, do you have to do delegating to do the Veterans Advantage, or does that go under your Express delegation? Linda Rusche: You need to be
an Express lender to provide an Express loan. We don’t have a specific Veteran Advantage product anymore, because it was the same general provision as the Express, with just a little bit of difference in guarantee percentage, about 5 percent. So if you are interested in
assisting a veteran customer, the Express program would assist – would help you do that. Kathryn Baxter: Okay. Here’s a question regarding refinancing for SBA loans, question 62. The credit union says that they have requests which include paying off multiple loans and includes SBA loans.
They think that they need to be declined prior – by the prior lender before moving forward. Is there any kind of really need – is there a workaround, rather, or do they really need to be turned down first? Linda Rusche: I think what I’m reading in this question is that a credit union is interested in making a
loan to a customer that has an SBA loan with a different institution. We do require in an attempt to ensure we make most efficient use of our guarantee dollars, which are limited, of course, that a prior lender with the guarantee commitment be first asked to modify terms of that
loan. Generally, that can be done unless the loan were sold in the secondary market. But if the prior lender that has the guarantee loan commitment is rejecting all requests from the customer to modify or change terms, then as a piece of
documentation that can be provided through the existing lender, the existing credit union, requesting a new additional credit to SBA, and we can consider the possibility of a payoff of that. We try to avoid paying off one SBA loan with another SBA loan, and it is possible
for a credit union to obtain an SBA loan commitment on a second loan without really altering the terms of the first loan. So there are lots of different ways to wrinkle that and work that. I wouldn’t necessarily call any of them workarounds, but there’s lots of options. And that might
be a great opportunity for the credit union and the borrower to chat with its District Office about possibilities. Kathryn Baxter: Okay, fantastic. So, now, here’s a question that a credit union has about business plans, question No. 12. They want to know who would be available to review, evaluate
or determine the feasibility of business plans. Linda Rusche: SBA does not specifically affirm or confirm or certify business plans. We do, however, as an agency, provide funding and develop relationships with other parties and service providers who do. As an example, we have
a small business development company, SBDC, network throughout the nation, with local-state grant funding paired together, and many of those SBDC offices can help you and your customer in assessing the viability of a business plan. Some certified development companies provide assistance
that way, and some CDFIs might provide you help in doing that, even though they might not be providing the actual credit. We also have veteran business centers and women business centers in addition to the SBDCs in different parts of the country. So, again, I refer you back to your District Office. Almost
every District Office has a great magazine publication that has all the compilation of the service providers and the micro lenders and the CDCs that will help you know what’s available for you and your customer in your specific area. Kathryn Baxter: Okay, great. We’ve got question 56. Here’s what the
credit union wants to know. Is it possible to get an SBA guarantee on an MBL that is already in our portfolio, or does it need to be a new transaction? Linda Rusche: An existing loan is not something that SBA guarantees. If there is a particular reason
why a new loan should pay off an existing MBL, we can consider that. I wouldn’t strongly encourage it, because there are caveats to debt repayment. But once the loan is booked with your institution, SBA
would not apply a guarantee to an already booked loan. It must come to SBA as a new loan request. Kathryn Baxter: Okay. Fantastic. All right. Here’s another question from a credit union about they’re interested in knowing some information or
some approximation on the default in today’s environment. Question 71, they want to know, can you give us an estimate of the percentage of 7(a) small SBAs that default in today’s environment? Linda Rusche: You know, I just don’t have those numbers off the top of my
head, so I don’t want to give you a number that would be incorrect. I do know that we honor well over 95 percent of all guarantees where the loan has defaulted and the lender, in this case the credit union, is requesting that we honor the guarantee. But the actual default
number I don’t have off – I just don’t. You could certainly email us, email the servicing contact or email myself, or we’ll also try to get that to the organization so that we can have that disseminated. We do publish that information. I just don’t have it memorized. Kathryn Baxter: Don’t worry. That’s okay.
We only have a few more questions that we’re going to be able to address to our audience, so if you have any questions that you’d like to submit them, submit them now, because we’re winding down at the close of the hour. So here’s a question, question No. 59, still for the SBA team. The
credit union says if a person is new to commercial lending, are they eligible to do SBA lending? Linda Rusche: That’s an interesting question, because it takes the approach that the person is the – or the loan officer is the one eligible to make the SBA loan. Let me be
very clear. It is the institution that signs the agreement with SBA. We expect the institution to provide qualified individuals within its organization that knows MBL or learns MBL. And actually we in our districts will provide assistance in helping you get up to speed with what you need to know
about the SBA. But it’s not the person that has the authority to make the SBA loan. It is the lender that has the authority to make application to SBA, and it is the lender’s management choice whom within their organization they authorize to do that on their behalf. Kathryn
Baxter: Okay. Vin is also going to address that. Were you going to address it, Vin? Vin Vieten: Sure. Yes, thanks, Kathryn. I agree with Ann Marie that it’s the institution that qualifies for the ability to do SBA lending.
But a new person doing commercial lending, hopefully they’ve had some experience and have good mentors within the institution that will help them develop their skills in commercial lending. Kathryn Baxter: Okay. Well, I think we’re
going to entertain one more question, and let’s let that be question 68. The credit union said that they thought that the minimum equity requirement or down payment was 10 percent. Is that correct? Linda Rusche: One more time from Linda Rusche here, that would be a requirement
of the 504 loan program. The minimum borrower contribution is 10 percent, and it can go as high as 15 to 20 percent if it’s special use property or a brand new business. But in the 7(a) loan program, we have no specific requirement for borrower equity. It is dependent,
again, upon the financial condition of the business and how that equity position relates to the debt service coverage of the debt being requested. So from a 7(a) perspective, it is not correct that you would say there always must be a minimum 10
percent equity. Kathryn Baxter: Go ahead, Vin. Vin Vieten: Yes, and this is a good time to introduce the position of the NCUA when the SBA is involved. When the SBA is involved, we can – we do allow the less stringent requirements
of the program, of the SBA program, to supersede our requirements. Also, when it comes to collateral, we can accept the SBA-accepted collateral as long as it doesn’t exceed 95 percent LTV. If it did, then it would
require a waiver. Kathryn Baxter: Well, that’s the end of our webinar for today. We’d love to thank our SBA partners, our NCUA staff, and you, our audience, for tuning in today. Please join us on the 25th of this month for “Successful
Strategies for Field of Membership Expansion. ” Go to our NCUA website, www. ncua. gov, and you’ll look on the right-hand side, the lower section of the page, and you’ll see upcoming events, to register. Thank you so much for joining us.
Thank you for our SBA team and our NCUA staff. We’d like everyone to have a great afternoon and a wonderful week.

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