I would like to beat the dead horse named "GAR" - Gross Annual Revenue and pose a question on the definition of "control" as it pertains to including revenues of an affiliate for the GAR calculation.
We know that the CRA Q&A states to include the revenues of an affiliate in the GAR calculation as indicated:
"§ 345.42(a)(4)--1: When indicating whether a small business borrower had gross annual revenues of $1 million or less, upon what revenues should an institution rely?
A1. Generally, an institution should rely on the revenues that it considered in making its credit decision. For example, in the case of affiliated businesses, such as a parent corporation and its subsidiary, if the institution considered the revenues of the entity's parent or a subsidiary corporation of the parent as well, then the institution would aggregate the revenues of both corporations to determine whether the revenues are $1 million or less. Alternatively, if the institution considered the revenues of only the entity to which the loan is actually extended, the institution should rely solely upon whether gross annual revenues are above or below $1 million for that entity. However, if the institution considered and relied on revenues or income of a cosigner or guarantor that is not an affiliate of the borrower, such as a sole proprietor, the institution should not adjust the borrower's revenues for reporting purposes."
The example stated in this Q&A for "affiliated businesses" is very limited (parent and subsidiary). Generally, an "affiliate company" means a company controlled by or under common control or ownership by another entity. But is there a percentage of control that should be used for data reporting when revenues of an affiliated company are considered in the credit decision? Is 25% considered common control? 10%?
We are engaging our credit analysts to assist in GAR reporting on larger credits. They are asking very detailed questions, of which all resources I have are silent on these issues.
Six consecutive "Outstanding" Large Bank CRA Ratings.... and counting.