From the Q and A. The loan must meet the size AND the purpose test.
§ll.12(g)(3) Activities that promote
economic development by financing
businesses or farms that meet certain
size eligibility standards
§ll.12(g)(3)—1: ‘‘Community
development’’ includes activities that
promote economic development by
financing businesses or farms that meet
certain size eligibility standards. Are all
activities that finance businesses and
farms that meet these size eligibility
standards considered to be community
development?
A1. No. The concept of ‘‘community
development’’ under 12 CFR
ll.12(g)(3) involves both a ‘‘size’’ test
and a ‘‘purpose’’ test. An institution’s
loan, investment, or service meets the
‘‘size’’ test if it finances, either directly
or through an intermediary, entities that
either meet the size eligibility standards
of the Small Business Administration’s
Development Company (SBDC) or Small
Business Investment Company (SBIC)
programs, or have gross annual revenues
of $1 million or less.
To meet the ‘‘purpose test,’’ the
institution’s loan, investment, or service
must promote economic development.
These activities are considered to
promote economic development if they
support permanent job creation,
retention, and/or improvement for
persons who are currently low- or
moderate-income, or supports
permanent job creation, retention, and/
or improvement either in low- or
moderate-income geographies or in
areas targeted for redevelopment by
Federal, state, local, or tribal
governments. The agencies will
presume that any loan to or investment
in a SBDC, SBIC, Rural Business
Investment Company, New Markets
Venture Capital Company, or New
Markets Tax Credit-eligible Community
Development Entity promotes economic
development. (But also refer to Q&As
§ll.42(b)(2)—2, §ll.12(h)—2, and
§ll.12(h)—3 for more information
about which loans may be considered
community development loans.)
In addition to their quantitative
assessment of the amount of a financial
institution’s community development
activities, examiners must make
qualitative assessments of an
institution’s leadership in community
development matters and the
complexity, responsiveness, and impact
of the community development
activities of the institution. In reaching
a conclusion about the impact of an
institution’s community development
activities, examiners may, for example,
determine that a loan to a small
business in a low- or moderate-income
geography that provides needed jobs
and services in that area may have a
greater impact and be more responsive
to the community credit needs than
does a loan to a small business in the
same geography that does not directly
provide additional jobs or services to
the community.