June 29, 2004 -- The National Credit Union Administration (NCUA) has proposed loosening its collateral requirement rules in an effort to encourage more credit unions to offer Small Business Administration (SBA) loans.

The amendment would allow federally insured credit unions to follow SBA regulations for construction and development loans. State-chartered credit unions would also be eligible as long as they have the authority to alter such requirements under state law.

The NCUA's standards would still apply to all non-SBA construction and development loans.

The SBA sets no minimum standard on the collateralized amount of a loan, though it requires a loan to be 100 percent collateralized when possible.

The NCUA has strict collateral rules for its member business loans, under which the loan-to-value ratio cannot exceed 80 percent.

The two federal agencies said in a press release that they have been working together for two years in order to ease the barriers so that credit unions can make more SBA loans.

In February 2003, the SBA opened its eligibility rules to allow all credit unions to partner with the SBA. Despite the ability to offer the loans, credit unions have been slow to make them: out of more than 1,600 credit unions that make business loans, only about 150 are making SBA loans, according to the NCUA.