Office of Small Credit Union Initiatives SBA Opportunities ...wcc.on24.com/event/13/34/20/6/rt/1/documents/slidepdf/sba...SBA Opportunities for Credit Unions 16 SBAOne Lender Platform

SBA Opportunities for Credit Unions


Kathryn Baxter, Moderator Vanessa Lowe, Host

Guest Speakers: • Scott Bossom, SBA • J. Christopher Webb, SBA • Rippy Madan, NCUA

Office of Small Credit Union Initiatives

February 15, 2017

SBA Opportunities for Credit Unions 2

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Administrative Announcements














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.

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What You’ll Hear Today

SBAOne – SBA’s Lender Platform

SBA’s Microloan Program

NCUA MBL Rule, Effective January 1, 2017

Q&A – Send questions at any time


Vanessa Lowe

Voices on the Webinar

Economic Development Specialist NCUA Office of Small Credit Union Initiatives


Lender Relations Specialist


Scott Bossom


Microloan Division SBA Office of Economic Opportunity


J. Christopher Webb


NCUA Region II Lending Specialist


Rippy Madan


What is your credit union’s asset size?

Less than $10 million

>= $10 million but less than $50 million



>=$250 million

N/A

Poll #1


Certificate Available at End

Must complete full webinar, answer Poll

questions and correctly answer 12 out of 15 quiz

questions.


Portland District Office U.S. Small Business Administration

SBA 7(a) Lending Program Overview


The Role of the SBA

Guarantee portions of loans for lenders Provide technical assistance resources Assist with government contracting opportunities Serve limited role as Direct Lender

– Disaster Relief

– Microloan Program

Provide grants – None to for-profit businesses

– Nonprofit Technical Assistance providers


SBA 7(a)

Loan Program

SBA Express CAPLines

Small 7(a)

Community

Advantage

Export Express/ITL

Large 7(a)

SBA 7(a) Lending Program


7(a) Highlights

Available for loans up to $5 million Guarantees: 85% on loans of $150,000 or less, 75% on

those over $150,000, 90% max on Int’l Trade/Export Fees are based on guaranteed amount – tiered ranging

from 2.00-3.75% Extended terms available – up to 10 years on

equipment/working capital, 25 years on real estate Term loans must be fully amortized Rates capped at Prime + 2.75% for loans 7 years or longer

and Prime + 2.25% for loans less than 7 years


Underwriting an SBA 7(a) Loan

It’s really no different than what you currently do.

SBA instructs lenders to analyze a credit the same way it would a non-SBA deal.

Our guaranty allows a lender to mitigate aspects of the deal that fall in the fringes of your credit policy (i.e., collateral shortfalls).


SBAOne Lender Platform

In use since February 2016 Will ultimately be a “Cradle to Grave” system…

– Processing Servicing Purchasing system

Currently only processing is available Non-Delegated lenders are mandated to use SBAOne Delegated still process PLP/Express loans through Etran Creates significant efficiencies overall and is much more

user friendly On-Demand Training Portal housed within the SBAOne

system






The Financial Side

There is no loss reserve requirement for the guaranteed portion of an SBA loan.

Secondary market for SBA guarantees is very active. – Purchases are at 105-118% of par.

– When guarantees are sold, the borrower is unaware.

– Lender still services the loan and typically earns a

0.25% share of the rate as a fee.

– Lenders under any kind of regulatory enforcement

action are ineligible to sell guarantees.


The Financial Side

Lender

Lender sells guarantees at 110% average

$935,000*

10 total borrowers

$1,000,000

SBA grants 85% guaranty on each

deal

$850,000

$935,000 now available to lend

back out

1

2 3

4

*Plus a share of the rate as a servicing fee


Poll #2

Does your credit union offer business loans?

No

Yes, and we have had SBA guarantees

Yes, but we haven’t had SBA guarantees

Unsure

N/A (for participants not affiliated with a credit union)


U. S. Small Business Administration www.SBA.gov

Office of Economic Opportunity Microloan Program

http://www.sba.gov/


Office of Economic Opportunity Programs

Microloan Program – How it works

Highlights / Statistics – FY2010 - FY2016

Microloan Program – Application Process

Resources / Contacts

What I’ll Cover


• Loan Guaranty – up to $250,000 (Non-profit Lenders)

Community Advantage (CA)

• Direct Loans – up to $200,000 (Non-profit Lenders)

Intermediary Lending Pilot

Program (ILPP)

• Direct Loans – up to $50,000 (Non-profit Lenders)

• Technical Assistance Grants

Microloan Program

• Grants up to $250,000

• Technical Assistance

• Capacity Building

• Research and Development

PRIME Grant Program

Office of Economic Opportunity (OEO)


The Microloan Program was created to assist women, low income, minority, and veteran entrepreneurs, and others in obtaining small amounts of business capital, along with business based training and technical assistance.

Microloans must be made to for profit businesses. Non-profit child care businesses are also eligible.

Microloan Program


SBA

• SBA lends $ to Intermediary Lender

• SBA provides grant $ to Intermediary Lender to help offset cost of providing Training and Technical Assistance (TA)

Intermediary Lender

• Lends $ to Microbusinesses

• Provides Training and TA to microbusinesses

Microbusiness

How the Microloan Program Works

Borrows Funds for Business Growth

Intermediary Lender repays SBA

Microbusiness repays loan to Intermediary Lender


• $750,000 (1st loan)

• $2,500,000 (subsequent loans)

• $5,000,000 (Maximum Debt Outstanding) Max. Borrowing

• 10 Years from date of note Maturity

• 5 year T-Bill Rate, less 2% for average microloan <$10,000; otherwise less 1.25% Interest Rate

• Intermediary’s Microloan Revolving Fund, Loss Reserve Fund, and Microloan Notes Collateral

• 15% of loan disbursements matched with non-borrowed, non-Federal funds Matching Funds

• Short term, fixed rate loans of $50,000 or less Use of Proceeds

SBA Loans to Intermediary Lenders


Loans from Intermediary to Microbusiness

• Up to $50,000 Loan Amount

• Up to 6 years (72 months) Maturity

• Fixed rate, up to: Cost of Funds + 8.50% (if <=$10,000)

• Cost of Funds + 7.75% (if loan >$10,000) Interest Rate

• Loans for supplies, furniture, fixtures, materials, equipment, or working capital

Use of Proceeds

• Required at Intermediary’s discretion – flexibility in structuring loan

Collateral

• Decisions made by Intermediary, not SBA

• Intermediary’s policies and procedures Underwriting/Servicing


Technical Assistance (TA) Grants

SBA provides grant funding to Intermediary Lenders who, in turn, provide free business training and TA to their microbusiness clients.

Intermediary provides ongoing training and TA to

microbusinesses (minimum 75% for post-loan TA).

Grants help defray the cost of providing training and TA

to micro borrowers and potential micro borrowers.

Grant maximum = 25% of Intermediary’s outstanding

debt to SBA.

25% matching funds required.


Microloan Program Highlights

• 150 (approximately) Active Intermediary

Lenders

(Current)

• $537,294,000 (as of 12/31/16) SBA Loans Disbursed to

Micro-Lenders (Historical)

• 64,857 Loans Closed

• $797 Million Funded to Micro Businesses

• $12,290 (Average Microloan Size)

Microloans Closed (Historical)

• Created – 94,593

• Retained – 138,841

Jobs Created/Retained

(Historical)


Program Highlights

• Number Closed 4,512 4,272

• Dollars Closed $61,426,440 $53,964,330

Microloans Closed FY2016 FY2011 – 2016 Average

• Start Ups 40.63% 45.46%

• Women-Owned 45.21% 43.94%

• Hispanic 16.16% 25.07%

• African American 32.06% 27.95%

Underserved Market Indicators

• Jobs Created 6,768 6,307

• Jobs Retained 11,091 9,677

Jobs Data

• Average Size $13,614.02 $12,630

• Average Interest Rate 7.51% 7.73%

• Months Average Term 40.3 Months 37.6 months

Microloan Data

Current Year / Past 5 FY Comparison


Microloan Program Application Eligibility

– Non-Profit

– At least 1 Year Direct Lending and Loan Servicing

Experience

– At least 1 Year In-house Technical Assistance Experience

Qualifications

– Personnel – Relevant Micro-lending Experience

– Lending – Experience

– Training / TA Experience

– Financial Strength / Stability


Application Components 1. Cover sheet.xls

2. SBA 1081.pdf

3. Lending History Chart.xls

4. Cost of Lending Calculation.xls

5. Item 10 Chart.xls

6. Cert. of Contracts sba1711.pdf

7. Disclosure of Lobbying Activities sflllin.pdf

8. Debarment sba1623.pdf

9. Resolution of the Board of Directors sba160.pdf

10. Security Agreement SBA1059.pdf

11. 1Microloan SOP 52 00 (FINAL).pdf

Microloan Program Application


Microloan Program Application

Where do I get the application zip file? From the Local SBA District Office

https://www.sba.gov/tools/local-assistance/districtoffices

Where do I deliver the completed application? To the Local SBA District Office

What happens next? District Office reviews for completeness / delivers to HQ HQ reviews for eligibility and qualification / makes

decision





Application Rules

Read the Microloan Program SOP. Clearly describe current lending and TA

programs. Follow the directions / Cover Sheet carefully. Only deliver a complete application. Use the Lending History and TA History

templates.


Microloan Program Resources

URL for SBA Microloan Webpage http://www.sba.gov/content/microloan-program

List of Active Intermediary Lenders

– Found at the bottom of the Microloan Webpage https://www.sba.gov/sites/default/files/articles/microlenderrpt_160111.cfm_.

pdf

– Microloan Program SOP https://www.sba.gov/sites/default/files/sops/SOP-52-00-A-Microloan.pdf

Daniel Upham, Chief, Microenterprise Development Division

[email protected]

202-205-7001

http://www.sba.gov/content/microloan-program



https://www.sba.gov/sites/default/files/articles/microlenderrpt_160111.cfm_.pdf



https://www.sba.gov/sites/default/files/sops/SOP-52-00-A-Microloan.pdf










mailto:[email protected]


Questions and Point of Contact

James (Chris) Webb Deputy Chief

[email protected] Phone 202-619-0628

mailto:[email protected]


Poll #3

How does your credit union support microenterprises? (check all that apply)

We offer entrepreneurship training.

We refer members to a training partner.

We make loans via the SBA microloan program.

We make loans via another partner.

None of the above.


Final Rule: Part 723 Member Business Loans

Prescriptive vs. Principles-Based Rule Changes


Goals of Modernizing Part 723

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1. Replace overly prescriptive requirements with principles-based standards.

2. Clarify and expand risk management requirements needed to safely conduct commercial lending activities.

3. Improve the expertise and policy provisions of the regulation.


Goals of Modernizing Part 723

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4. Change supervisory focus to sound commercial risk management practices from compliance with prescriptive regulatory requirements.

5. Eliminate NCUA involvement in day-to-day operations of CUs by eliminating need for waivers.

6. Distinguish between commercial loans and the statutory definition of MBLs.

7. Incorporate statutory limit for aggregate MBLs pursuant to Section 107A of the FCU Act.


Prescriptive vs. Principles-Based Approach

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Prescriptive rule: – “Do not drive faster than 75 mph.”

Principles-based rule:

– “Do not drive faster than what is reasonable and

prudent in all circumstances.”


Waivers No Longer Required

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Aggregate construction and development (C&D) limit

Minimum borrower’s equity for C&D loans Loan-to-value (LTV) requirement Personal Guarantee requirement Maximum unsecured MBL to one member or

group of associated members Maximum aggregate unsecured MBL loan limit Maximum aggregate net MBL to one member or

group of associated members


Key Changes and Enhancements

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Provision Old Rule Final Rule

723.1(b)(1) Exemption from the Board / Management Responsibilities (723.3) and Loan Policy Requirements (723.4)

N/A Smaller credit unions (Total Assets <$250 million) with limited commercial loan exposures and that infrequently originate and sell commercial loan participations are exempt from the commercial loan policy and board/management requirements.



723.3 Board of Director and Management Responsibilities

Limited coverage (adopt and review policy)

2 years of direct experience

Clearly articulates that the CU board is ultimately accountable

Removed the 2 year requirement and specifies the types of experience with emphasis on commercial risk management




723.4 Loan Policy Requirements

Limited coverage on risk management processes

Requires underwriting commensurate with size, scope and complexity

Requires a reliable credit risk rating system

Requires a loan approval process

Stipulates sound risk management processes, including periodic loan review, exceptions tracking, etc.




723.4(c) Loans to a Single Borrower or a Group of Associated Borrowers

The greater of $100,000 or 15% of net worth

Maintains the 15% limit with added flexibility to go up to 25% if the amount above the 15% is secured by “readily marketable collateral”

Modifies the definition of “associated borrower” to narrow its scope (parallel change made to Loan Participation rule)




723.4(c) Unsecured MBLs

Lesser of $100,000 or 2.5% of CU Net Worth to one member (Well Capitalized CUs only)

10% of CU Net Worth

Removed the limits

Requires credit unions to set internal policy limits




723.5(a) LTV

80% Removed the 80% limit

Requires sufficient collateral commensurate with the level of risk

Excludes junior debt from other lenders in calculating the LTV ratio




723.5(b) Personal Guarantee

Requires personal guarantee

Removed the explicit requirement

Requires credit unions to determine and document mitigating factors when personal guarantee is not required

Requires credit unions to set internal policy limits




723.6 Construction and Development Loans

25% equity interest

15% of net worth

Removed the limits

Clearly defines collateral valuation method

Requires CUs to value collateral appropriately and ensure risk sharing

Requires CUs to set internal policy limit

Stipulates loan administration requirements




723.8 Non-member business loan participations

Included in the MBL cap unless waiver is granted

Removed non-member business loans from the calculation against the MBL cap

No longer requires waivers




723.10 State Rule

Seven states have parallel state rules (CT, IL, MD, OR, TX, WA, WI)

Grandfathers the 7 existing state rules

Preserves the option for a state to develop state rule that complies with FCU Act and is at least as stringent as Part 723



Summary - Examiner’s Perspective CU Board will approve the commercial loan policy and

will ensure appropriate staffing and risk awareness.

Management will develop and administer a business

lending program commensurate with the size and

complexity of the portfolio.

Management will ensure the effective, ongoing credit

administration of the business loan portfolio.

Business lending staff will have the experience and

expertise for the type, size, and complexity of the

credit union’s offerings.


NCUA References

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Part 723 - Final MBL Rule and Preamble https://www.gpo.gov/fdsys/pkg/FR-2016-03-14/pdf/2016-03955.pdf

Part 701.21 - Loans to Members Part 701.22 - Loan Participations Part 722 - Appraisals Part 712 - CUSOs Examiner’s Guide, Chapter 10 13-CU-03 Troubled Debt Restructure (TDR) 10-CU-23 Interagency Appraisal and Evaluation Guidelines 10-CU-07 Commercial Real Estate Workouts 10-CU-02 Risks in Business Lending 08-CU-26 Evaluating Participation Programs Accounting Bulletin # 06-01 Interagency Guidance for ALLL Appendix 1. Loan Review Systems

https://www.gpo.gov/fdsys/pkg/FR-2016-03-14/pdf/2016-03955.pdf












Poll #4

Which MBL rule change is most helpful?

Moving from prescriptive requirements to principles-based standards

Clarifying and expanding guidance on commercial lending risk management practices

Eliminating the need for NCUA waivers

Differentiating commercial loans from the MBL statutory definition

N/A


Certificate Available at End

Must complete full webinar, answer Poll

questions and correctly answer 12 out of 15 quiz

questions.


CDFI Certification - More Than One Way to Get There: The June 23, 2016 joint-agency webinar explained the two methods a credit union may use for becoming a CDFI.

CDFI Fund Certification: This video explains the benefits of CDFI certification and guidance from the CDFI Fund for credit unions using the traditional application.

Announcement for the Community Development Financial Institution (CDFI) Initiative

We encourage credit unions to explore the benefits of becoming a CDFI-certified credit union.

https://event.on24.com/eventRegistration/EventLobbyServlet?target=registration.jsp&eventid=1182373&sessionid=1&key=40A5586A6B75B4E857A94426C1618A32&sourcepage=register





https://www.youtube.com/playlist?list=PL--na5_QagEjt2Mv0LeGdFiKKt72YQO2u

https://www.youtube.com/playlist?list=PL--na5_QagEjt2Mv0LeGdFiKKt72YQO2u


Q & A Session

You may submit a question at any time in the “Ask A Question” box, which you should see on

the left side of the console window.

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NCUA Contact Page

Office of Small Credit Union Initiatives

[email protected] Phone: 703-518-6610

FAX: 703-518-6619

Documents

Office of Small Credit Union Initiatives SBA Opportunities ...wcc.on24.com/event/13/34/20/6/rt/1/documents/slidepdf/sba...SBA Opportunities for Credit Unions 16 SBAOne Lender Platform