WASHINGTON—The Small Business Administration (SBA) has issued a notice of proposed rulemaking to modernize and streamline regulations under the 7(a) and 504 Loan Programs.
Credit unions participating in the SBA’s 7(a) Loan Program, 504 Loan Program, as well as the Microloan Program, Intermediary Lending Pilot Program, Surety Bond Guarantee program, and the Disaster Loan programs (except for the COVID Economic Injury Disaster Loan Program), would need to adhere to new lending criteria and loan conditions, among other requirements under the proposal, NAFCU noted
The proposal revises the following sections: “restrictions on uses of proceeds,” “what are SBA’s lending criteria,” “loan conditions,” “reconsideration after denial,” and “restrictions on loans for changes of ownership.”
According to NAFCU, of importance to credit union lenders is that the SBA is proposing a requirement that lenders use appropriate, prudent, and generally acceptable commercial credit analysis processes and procedures consistent with similarly sized, non-SBA guaranteed commercial loans. Through the use of these processes, lenders would be able to underwrite SBA loans in the same manner as they currently underwrite non-SBA guaranteed commercial loans, NAFCU noted.
In addition, the proposal seeks to add language to a section related to creditworthiness to permit lenders to use a business credit scoring model, such as SBA’s Small Business Scoring Service (SBSS).
‘Three Specific Criteria’
“To gauge an applicant’s creditworthiness, lenders would consider three specific criteria when approving loans: the applicant’s credit score of credit history, earnings or cash flow, and, where applicable, any equity or collateral,” NAFCU said.
The agency is also proposing to remove the requirement to consider character and reputation, NAFCU said.
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