Regulators Issue Joint Small Biz Lending Statement Posted by AVCU on 12:34 PM

Last Friday NCUA joined federal and state bank and thrift regulators in a joint message emphasizing "that financial institutions that engage in prudent small business lending after performing a comprehensive review of a borrower's financial condition will not be subject to supervisory criticism for small business loans made on that basis."  The regulators said that they "recognize that small businesses play an important role in the economy and know that some are experiencing difficulty in obtaining or renewing credit," and, in response, are "working with the industry and supervisory staff to ensure that supervisory policies and actions do not inadvertently curtail the availability of credit to sound small business borrowers." The statement added that "financial institutions should understand the long-term viability of the borrower's business and focus on the strength of a borrowers' business plan to manage risk rather than using portfolio management models that rely primarily on general inputs, such as a borrower's geographic location or industry."

Regulators also recommended that financial institutions focus on the borrower's "plan for the use and repayment of borrowed funds," and maintain "an understanding of the competition and local market conditions affecting the borrower's business" rather than simply basing their lending decisions "solely on national market trends when local conditions may be more favorable."  

In addition to NCUA, the group consisted of the FDIC, OCC, OTS and Fed, with the Conference of State Bank Supervisors representing state regulators.