OCC releases commercial lending bulletin on venture loans

Bank Regulatory OCC Commercial Lending Venture Capital Risk Management

On November 1, the OCC issued a bulletin on “commercial loans to early-, expansion-, and late-stage companies,” which it referred to as “venture loans.” The OCC explained that although “venture lending supports new business formation and can improve access to capital for growth companies… new business ventures have a high probability of failure.” Accordingly, the bulletin, which “applies to all OCC-regulated banks, including community banks, that engage in or are considering engaging in venture lending,” provides guidance on the agency’s expectations for risk management and risk-rating of venture loans. 

The bulletin expressly exempts “[f]ully monitored and controlled asset-based loans (ABL) to early-, expansion-, and late-stage companies,” from the guidance.  In addition, the OCC does not categorize the following types of credit as venture loans:

• Loans to businesses that primarily rely on internal cash flow, rather than equity investments, for their growth;
• Loans made under government-backed lending support programs where federal, state, or local guarantees sufficiently reduce credit risk (e.g., SBA guarantees); and
• Loans made under special purpose credit programs (SPCP).