Under the new NCUA MBL regulation, the personal guarantee requirement was set to be eliminated sixty (60) days after the final rule’s publication in the Federal Register. May 13 was the 60th day. For once Friday the 13th is a lucky day.
Credit unions are now permitted to evaluate a particular member business loan’s risk and determine whether or not the loan will require a personal guarantee for the borrower. In the event a credit union decides to grant a member business loan without a personal guarantee, the credit union must determine, and record in the loan file, the mitigating factors it considered in granting the loan without the personal guarantee. The credit union will have to be prepared to justify to an examiner that the decision was prudent and appropriate. The final rule makes it clear that exempting a borrower from a personal guarantee may only be done with appropriate corresponding underwriting parameters and portfolio safeguards.
We believe that the vast majority of loans to small business will continue to be underwritten with personal guarantees but credit unions are now free to make exceptions as appropriate. This means those triple A lending opportunities that do not require personal guarantees in the marketplace will no longer be lost to the banks.
As a friendly reminder, although the personal guarantee requirement has been eliminated, the remainder of the MBL final rule will not go into effect until January 1, 2017. Between now and January 1, 2017, the NCUA has stated that it will publish supervisory guidance to provide more information regarding its supervisory expectations under the new MBL principles-based regulatory approach.
If you have any questions about the elimination of the personal guarantee requirement, or any other questions concerning the new MBL regulation, please contact me at firstname.lastname@example.org or (610) 891-9000.