Collateral and Security Requirements for Small Business Administration (SBA) 504 Program Loans

You have asked if the exemption from the collateral and security requirements in NCUA’s member
business loans (MBL) rule for loans made as part of an SBA guaranteed loan program includes loans made under SBA’s 504 loan program. Yes, the exemption applies to 504 loans.

NCUA’s MBL rule imposes collateral and security requirements for all secured MBLs, including
construction and development loans. 12 C.F.R. §§723.3, 723.7. In short, those provisions require
a borrower to have a specified minimum equity position in a project or set a maximum loan-to-value
ratio for business loans.

Sections 723.4(b) and (c) of the MBL rule, however, provide an exemption from the above

collateral and security requirements. Specifically, those provisions state:

(b) If a federal credit union makes a member business loan as part of a Small Business
Administration guaranteed loan program with loan requirements that are less restrictive than
those required by NCUA, then the federal credit union may follow the loan requirements of
the relevant Small Business Administration guaranteed loan program to the extent they are
consistent with this part. A federally insured State-chartered credit union that is subject
to this part and makes a member business loan as part of a Small Business Administration
guaranteed loan program with loan requirements that are less restrictive than those required
by NCUA may follow the loan requirements of the relevant Small Business Administration
guaranteed loan program to the extent they are consistent with this part if its state
supervisory authority has determined that the credit union has authority to do so under State law.

 

(c) The collateral and security requirements of §723.3 and §723.7 do not apply to member
business loans made as part of a Small Business Administration guaranteed loan program.

12 C.F.R. §§723.4(b) and (c). NCUA has received a number of requests to clarify that the
exemption in §§723.4(b) and (c) includes loans made under SBA's 504 loan program. Please
note the NCUA Board confirmed the exemption applies to 504 loans in a final rulemaking.
69 Fed. Reg. 62563, 62564 (October 27, 2004).

Feel free to contact Staff Attorney Frank Kressman or me with any additional questions or
if we can be of further assistance.