On November 1, 2023, the OCC issued a bulletin to inform banks about policy guidance that applies to commercial loans to early-, expansion-, and late-stage companies, referred to as “venture loans.” The bulletin applies to all OCC-regulated banks, including community banks, that engage in or are considering engaging in venture lending.
According to OCC’s press release, there is heightened uncertainty and higher probability of failure associated with new business ventures and the agency expects banks engaging in venture lending to do so in a safe and sound manner, in compliance with applicable laws and regulations, and with support from sound risk management systems. The OCC reminds financial institutions to identify the purpose of the loan and the source of repayment as well as assess the ability of the borrower to repay the loan in a timely manner before making any loan.
The OCC’s bulletin was issued to:
Present background information on venture lending;
Describe venture lending risks;
Discuss risk management practices for venture lending; and
Provides guidance for risk-rating venture loans and evaluating repayment capacity.
The OCC stated that their examiners will scrutinize loan commitments that are underwritten without an adequate assessment of the borrower’s capacity to repay and will determine whether such loans should be subject to supervisory criticism. In addition, examiners will ask banks to evaluate the implications for loan loss reserves of any weak underwriting standards for venture loans.
The OCC’s bulletin can be found here.