Lending to Corporate Members

Why do you need to know?

Since 2012 credit unions have been able to decide if they will allow corporate membership, but also if the corporate members will be allowed to have loans. Your credit union must inform the appropriate regulator if you are going to lend to businesses or just take deposits. You must also register rule changes to enable corporate membership and lending.

Business lending is a very specialist area of lending and this guide aims to help you understand the implications of lending to corporate members.

The Key Points

• There are several different types of corporate bodies and it important that credit unions understand what their legal status is; what if any limitations they have on liabilities and most importantly are they able to borrow money.  Details about each type of corporate body is set out in our Corporate Members info guide.
• Lending to corporate bodies is very different to lending to individuals, so it will be important to set out your credit unions policy and procedures in respect of all your lending criteria for each group and it will be important to understand why that group is now applying for a loan from the credit union instead of maybe it’s bank or other specialist corporate lenders.
• You will need to consider what you would lend money for and what you would want to exclude. For example you may agree to fund a community group, until their grant is paid, but only if you have confirmation that the grant will be paid and that it will be paid direct to you.
• If considering corporate lending larger credit unions may want to consider appointing a corporate underwriting specialist

Regulatory Requirements

• Your credit union must inform the regulator if you are going to lend to businesses or just take deposits
• The credit union can make loans to corporate members holding non-deferred share. Loans cannot be granted to corporate members holding only deferred shares.
• Total loans to corporate members must not exceed ten per cent of the aggregate of the outstanding balances on all the loans made by the credit union.
• The maximum interest rate which can be charged on loans is the same as for individual members i.e. 3% a month or 42.6% APR. You may want to consider offering different loan rates based on the perceived risk or dependent on the economic/financial environment in which they operate.
• A credit union cannot add arrangement fees or loan charges to the loan (unless the total cost of credit including charges is no more than 42.6% APR). The cost of administering the loan has to be included within the loan interest (APR) charged,
• The maximum limit on loans to corporate members are the same as those for individual members

Lending limits 

The limits are the same as the limits for lending to individual members which are covered in the lending section of the PRA credit unions rulebook.

Further reading and guidance is available in the ABCUL Member Resource Library here.