Becoming an SBA Lender in a Post-PPP World
On May 31st the Paycheck Protection Program (PPP) came to a close. Created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the PPP loan program culminated in over 11.8 million loans approved by 5,467 lenders, and a total of more than $799.8 billion dollars approved for small businesses across the country.
For many credit unions, PPP lending was their first foray into providing Small Business Administration (SBA) loans to members. The CARES Act provided temporary authority for all insured credit unions to become PPP lenders; however, the authority to make a PPP loan terminates according to the Lender Agreement signed by the credit union. As credit unions look ahead to providing additional support and meeting the needs of their small business members, many may want to continue providing SBA loans.
What are the benefits of becoming an SBA lender?
First and foremost, the SBA guarantees a portion of the loans credit union lenders provide in the event of a member’s default. Credit unions may offer different SBA loan options, each catered toward assisting small businesses find capital that they might not otherwise be eligible for through existing lending channels.
Next, the portion of the government guarantee is removed from the NCUA’s member business lending (MBL) cap, essentially freeing up more capital for credit unions to provide to other members. Traditional SBA loan programs differ from the PPP program in that they are not 100 percent guaranteed, and each loan program’s government guarantee may vary.
As PPP lenders, credit unions will already be familiar with several of the SBA’s traditional loan program functions, including the SBA’s software systems used (e.g., E-Tran) and monthly 1502 reporting requirements. Some of the same SBA standard operating procedures that applied to the PPP program also apply to the agency’s traditional loan programs.
How do I become an SBA lender?
As always, the decision to provide commercial lending must be approved and adopted by the credit union’s Board of Directors and the policies and procedures need to reflect the types of commercial loans permitted, which means a credit union with an existing commercial lending policy may need to review their existing policy to determine whether it should be updated once a decision has been made to enter into SBA lending. Credit unions interested in becoming SBA lenders need to ensure they are following Part 723 of NCUA’s regulations governing MBLs and commercial lending.
Each distinct SBA lending program sets different requirements that a lender must possess to participate. For example, the SBA’s Mircoloan program is available for non-profit, community-based organizations that meet additional requirements. SBA’s Microloan program offers small businesses loans of up to $50,000.
Contact your local SBA field office for more information and assistance on becoming an SBA lender.
Additional Resources About SBA Lending Programs and Becoming a Lender
Below is a list of resources to help get you started on your SBA lending journey:
• NCUA & SBA Webinars: The Big Picture of SBA Lending for Credit Unions – Part 1 & Part 2
• NAFCU & SBA Webinar: SBA One Platform
• SBA’s Webpage on Becoming an SBA Lender
• SBA 7(a) and 504 Connect Quarterly Updates: The SBA puts on quarterly update calls for lenders and other interested parties. You can subscribe by sending an email to OFASubscribe@sba.gov.
If you have any questions, please reach out to me at kschafer@nafcu.org.