Unlocking the Advantages of SBA Loans for Credit Unions
From auto and commercial loans to mortgages and home equity loans, credit unions have continued to find ways to grow and support members in the communities they serve. While Small Business Administration (SBA) loans were historically untouchable for credit unions, they are now a valuable option worth exploring. These government-guaranteed loans can open the door to a new membership base, providing a low-risk source of interest income while nurturing growing businesses in your local community.
Doeren Mayhew’s SBA pros explore key advantages for credit unions.
- Reduced risk. Typically, up to 75% of the SBA loan is guaranteed.
- Enhanced loan portfolio. Expands lending in your small business market, adding business depository accounts.
- Competitive loan capabilities. Allows you to offer competitive long-term loans for up to 25 years. The rate may be variable or fixed.
- Expended lending abilities. SBA loans are good business and qualify for Community Reinvestment Act (CRA) or any state-level community reinvestment requirements.
- Minimal impact to reserve requirements. The SBA guaranteed portion of the loan does not impact your capital or loan loss reserve requirements.
- Larger loan options. The guaranteed portion of the loan is excluded from regulatory limits for a single borrower, enabling larger loans.
- Flexibility in loan liquidity. Your credit union can manage liquidity and generate significant profit by selling the guaranteed portion of the loan into the established SBA secondary market, which will allow you to:
- Immediately receive back proceeds from the sale of the guaranteed portion of the loan to lend to other members.
- Receive direct income from the secondary market premium from the sale of the guaranteed portion of the loan.
- Receive fee income for your lifetime servicing for the entire loan.
- Collect interest income for the unguaranteed portion of the loan that you retain.
For illustration purposes, below is an example on a simple cash basis:
| Loan Amount: 25-year maturity collateralized by real estate | $1,000,000 |
| SBA Guaranty | $750,000 |
| Interest Rate (Prime + 2.75% floating) | 10.25% |
| Sales premium estimated at 113, lender retains 1% services | $97,500 |
| Interest on $250,000 retained portion | $25,625 |
| Servicing fee on sold portion (1%) | $7,500 |
| Total year-one income for the $250,000 retained portion of the loan | $130,625 |
| Assume the average balance for year 2 to be $960,000: | $7,500 |
| Secondary Market | $720,000 |
| Lender Portion | $240,000 |
| Interest on Lender Portion retained | $24,600 |
| Servicing Fee on Secondary Market Portion | $7,200 |
| Total Year 2 income for $240,000 retained portion of the loan | $31,800 |
Ready to Start SBA Lending?
Is your credit union ready to unlock the benefits of offering SBA loans? Doeren Mayhew’s SBA pros can help. Whether you’re looking for assistance in starting an SBA department, need help developing or reviewing your credit policy, or are ready for your next SBA loan review, rely on our team of SBA specialists to do it all. Backed by over 45 years of experience and performing over 16,000 SBA loan reviews, we can help ensure your institution meets the SBA loan program requirements and is positioned for SBA lending success. Contact us below.
