On November 1, the Office of the Comptroller of the Currency (OCC) issued a bulletin on “commercial loans to early-, expansion-, and late-stage companies,” a term they have termed as “venture loans.” This signals the OCC’s recognition of the unique risks and opportunities associated with such lending activities.
The OCC clarified that venture lending has the potential for creating significant value by supporting new business formation and expanding access to capital for growth-oriented companies. However, it was quick to remind that such business ventures naturally carry a high probability of failure, given their inherent riskiness and the relative uncertainty surrounding their future profitability.
This bulletin applies to all OCC-regulated banks, including community banks that either engage in or contemplate engaging in venture lending activities. It is arguably an attempt to ensure that such banks are aware of and properly manage the unique risks associated with these loans.
Although this bulletin doesn’t introduce any new regulatory requirements, it contextualizes existing ones, including underwriting and risk management standards, to the realm of venture loans. Simultaneously, it demonstrates an encouraging regulatory openness towards innovative lending practices that can enhance the availability of finance for early-stage, growth, and late-stage companies, thereby potentially benefiting the broader economy.
This development comes courtesy of Orrick, Herrington & Sutcliffe LLP, whose thorough reporting has shed light on these ongoing conversations within the OCC.