1. (a) A member business loan is defined as any loan, line of credit, or letter of credit, the proceeds of which will be used for a commercial, corporate, business investment property or venture, or agricultural purpose, except that the following shall not be considered a member business loan for the purposes of this rule:

   1. (1) A loan secured by a lien on a 1- to 4-family dwelling that is the member's primary residence;
   2. (2) A loan fully secured by shares in the credit union making the extension of credit or deposits in other financial institutions;
   3. (3) Loan(s) otherwise meeting the definition of a member business loan made to a member or associated member that, in the aggregate, is $50,000 or less; or
   4. (4) A loan where a federal or state agency or one of its political subdivisions fully insures repayment, or fully guarantees repayment, or provides an advance commitment to purchase in full.
2. (b) A credit union with a net worth ratio greater than 6% may make member business loans subject to the conditions of this section. The aggregate limit on a credit union's outstanding member business loans (including any unfunded commitments) is the lesser of 1.75 times the credit union's net worth or 12.25% of the credit union's total assets. Loans that are exempt from the definition of member business loans are not counted for the purpose of the aggregate loan limit.
3. (c) The aggregate amount of outstanding member business loans to any one member or group of associated members shall not be more than 15% of the credit union's net worth (less the Allowance for Loan Losses account) or $100,000.00, whichever is higher. If any portion of a member business loan is secured by shares in the credit union or deposits in another financial institution, or is fully or partially insured or guaranteed by, or subject to an advance commitment to purchase by, any agency of the Federal government or of a state or any of its political subdivisions, such portion shall not be calculated in determining the 15% limit.

4. (d) All member business loans must be secured by collateral in accordance with this section, except the following:

   1. (1) a credit card line of credit granted to nonnatural persons that is limited to routine purposes normally made available under such lines of credit; and

   2. (2) a loan made by a credit union under the following conditions:

      1. (A) the amount of the loan does not exceed one hundred thousand dollars; the aggregate of all unsecured member business loans does not exceed ten percent of the credit union's net worth; and
      2. (B) the credit union has a net worth of at least seven percent.

5. (e) The maximum loan-to-value (LTV) ratio for a member business loan may not exceed eighty percent. Notwithstanding the foregoing, if a loan is secured by collateral on which the credit union will have a first lien, the LTV ratio may exceed eighty percent if the loan is:

   1. (1) Covered through acquisition of private mortgage or equivalent type insurance provided by an insurer acceptable to the credit union; or
   2. (2) Insured or guaranteed, or subject to advance commitment to purchase, by any federal or state agency or any political subdivision of this State. In no case, however, may the LTV ratio for a member business loan secured by a first lien exceed ninety-five percent.

6. (f) A credit union that engages in this type of lending shall adopt specific member business loan policies and review them at least annually. The policies, at a minimum, shall address all of the following areas:

   1. (1) Types of business loans to be made and collateral requirements for each type of loan.
   2. (2) The maximum amount of outstanding member business loans relative to the credit union's net worth.
   3. (3) The maximum amount of any given category or type of member business loan relative to the credit union's net worth.
   4. (4) The maximum amount that will be loaned to any one member or group of associated members, subject to subsection (c) of this section.
   5. (5) The qualifications and experience requirements for personnel involved in making and servicing business loans.
   6. (6) A requirement for analysis of the member's initial and ongoing financial capacity to repay the debt.

   7. (7) Documentation sufficient to support each request for an extension of credit or an increase in an existing loan or line of credit, except where the board of directors finds that the required documentation is not reasonably available for a particular type of loan and states the reasons for those findings in the credit union's written policy. At a minimum, the documentation must include the following:

      1. (A) A balance sheet;
      2. (B) An income statement;
      3. (C) A cash flow analysis;
      4. (D) Income tax data;
      5. (E) Analysis of leveraging; and
      6. (F) Receipt and the periodic updating of financial statements, income tax data, and other documentation.

   8. (8) Collateral requirements which include all of the following:

      1. (A) Loan-to-value (LTV) ratios;
      2. (B) Appraisal, title search, and insurance requirements; and
      3. (C) Steps to be taken to secure various types of collateral.
   9. (9) Identification, by position, of the officials and senior management employees who are prohibited from receiving member business loans which, at a minimum, shall include the credit union's chief executive officer, any assistant chief executive officers, the chief financial officer, and any associated member or immediate family member of such persons.
   10. (10) Guidelines for purchase and sale of member business loans and loan participations, if the credit union engages in that activity.

7. (g) Construction and development of commercial or residential property are subject to the following additional requirements:

   1. (1) The aggregate of all construction and development loans must not exceed 15% of the credit union's net worth. To determine the aggregate, a credit union may exclude any portion of a loan:

      1. (A) Secured by shares in the credit union;
      2. (B) Secured by deposits in another financial institution;
      3. (C) Fully or partially insured or guaranteed by any agency of the federal government, state, or its political subdivisions; or
      4. (D) Subject to an advance commitment to purchase by an agency of the federal government, state, or its political subdivisions;

   2. (2) The member borrower on such loans must have a minimum of:

      1. (A) 30% equity interest in the project being financed if the loan is for land development; or
      2. (B) 25% equity interest in the project being financed if the loan is for construction or for combination of development and construction; and
   3. (3) The funds may be released only after on-site, written inspections by qualified personnel and according to a preapproved draw schedule and any other conditions as set forth in the loan documentation.

8. (h) For the purposes of this section, the following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

   1. (1) Associated member--means any member with a common ownership, investment, or other pecuniary interest in the business or agricultural endeavor for which the business loan is being made.
   2. (2) Net Worth--means retained earnings as defined under Section 702.2 of the National Credit Union Administration's Rules and Regulations (12 CFR, Chapter VII, Part 702).

Source Note:The provisions of this §91.709 adopted to be effective August 9, 1999, 24 TexReg 6023; amended to be effective February 23, 2003, 28 TexReg 1377.