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#2189746 - 08/20/18 03:53 PM CD Loan - Operating Expense LOC
dhutson Offline
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Would a LOC (>$1 million) for operating expenses to a Wholesale Glass Distributor or a Produce Distributor qualify as a CD loan if the business is located in a LMI tract and employee 75 to 100 people from drivers, to office personnel to those who work with processing machines in the warehouse?

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#2189767 - 08/20/18 04:58 PM Re: CD Loan - Operating Expense LOC dhutson
Princess Romeo Offline

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First - check if the company meets the size standards for SBA. You will need the correct NAICS code for the company. For some industries, the size standard is based on annual revenue while for others it is based on total number of employees.

https://www.sba.gov/content/small-business-size-standards

If the company meets the size standards, then have your loan officer ask the company if the LOC helps them retain their workforce during the low points of their revenue cycle. In other words, if the company did not have the LOC to utilize for payroll and other operating expenses while awaiting payment on their receivables, would they have to cut full time jobs to part time, or rely in temporary workers rather than permanent workers?

If that answer is "Yes", have the lender document both the size standards and the job retention as part of the credit approval as the loan meets the definition of Economic Development according to the Q&A.
Last edited by Princess Romeo; 08/20/18 05:07 PM.
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#2189842 - 08/20/18 11:59 PM Re: CD Loan - Operating Expense LOC dhutson
mrogersfib Offline
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The Q&A provides when and where a loan must be reported as small business, or when a small business loan must be reported as a CD loan. If the loan is beyond the size test--it would be presumed that the loan would be economic development if it created, retained, or advanced jobs to LMI. Since the line is greater than 1MM it would more than likely fall beyond your reporting for small business. The size test is to help regulators distinguish between loans to small businesses and loans to large businesses.

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#2189843 - 08/21/18 01:02 AM Re: CD Loan - Operating Expense LOC dhutson
Princess Romeo Offline

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The original post indicated the LOC is greater than $1MM so it would not be reported as a small business loan on the CRA LR. Since it cannot be reported on the LR, it is reportable as a Community Development loan IF it qualifies under the definitions of Community Development which generally boil down to - Affordable Housing, Community Services, Revitalization/Stabilization, and Economic Development.

If the business exceeds the size eligibility for SBA, then it's a pretty high bar to have the an Operating Expense LOC qualify under the "Revitalize and Stabilize" prong for Community Development.

However, if the business meets the size eligibility for SBA and you can document that the loan helps the business create, retain or improve jobs in LMI areas OR for LMI individuals, then it meets the definition under the "Economic Development" prong for Community Development.

Q&A __12(g)(3)
Last edited by Princess Romeo; 08/21/18 01:15 AM.
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#2190880 - 08/28/18 05:42 PM Re: CD Loan - Operating Expense LOC dhutson
Pale Rider Offline
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Just to clarify, the size eligibility test for the SBA is not applicable for R/S, is it? I do agree a LOC for operating expenses is a tough sell for R/S.
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#2190937 - 08/28/18 08:48 PM Re: CD Loan - Operating Expense LOC Pale Rider
Lori01 Offline
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my brain is sleeping...what is "R/S"

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#2190963 - 08/28/18 11:42 PM Re: CD Loan - Operating Expense LOC dhutson
GuitarDude Offline
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Revitalization/Stabilization
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#2191036 - 08/29/18 03:40 PM Re: CD Loan - Operating Expense LOC dhutson
Lori01 Offline
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DUH!..see what happens when you go on vacation.....you forget even the basics !

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#2191076 - 08/29/18 05:44 PM Re: CD Loan - Operating Expense LOC Pale Rider
Princess Romeo Offline

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Originally Posted By Pale Rider
Just to clarify, the size eligibility test for the SBA is not applicable for R/S, is it? I do agree a LOC for operating expenses is a tough sell for R/S.


Correct - the size eligibility test does not apply to Revitalize/Stabilize, so if your loan is able to bring in or retain a major retailer in an LMI area, and that means that jobs for LMI will be created or retained, it meets the R/S test since the company is too large for the EconDev test.
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