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#2207506 - 03/01/19 12:26 AM CRA GAR
ckme Offline
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ckme
Joined: Sep 2002
Posts: 239
Commercial loan to customer buying an existing store. Should we use the GAR of the existing owner (> 1 million) or 0 (<= 1 million)?

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CRA
#2207650 - 03/04/19 05:50 PM Re: CRA GAR ckme
mrogersfib Offline
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Joined: Aug 2018
Posts: 116
Quote:
§__.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.

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#2209246 - 03/22/19 02:03 AM Re: CRA GAR ckme
Len S Offline
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Joined: Oct 2004
Posts: 1,848
Connecticut
It depends on how the acquisition has been structured. How was the deal structured?
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#2209247 - 03/22/19 02:03 AM Re: CRA GAR ckme
Len S Offline
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Joined: Oct 2004
Posts: 1,848
Connecticut
It depends on how the acquisition has been structured. How was the deal structured?
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#2213849 - 05/16/19 11:32 PM Re: CRA GAR mrogersfib
Kristi Offline
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Kristi
Joined: Feb 2005
Posts: 85
What if the loan is to ABC Inc and we have John Doe who is an owner also guarantee the loan. Would we use his income for CRA reporting?

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#2214353 - 05/24/19 04:39 PM Re: CRA GAR ckme
Len S Offline
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Joined: Oct 2004
Posts: 1,848
Connecticut
you won't use the personal income of the person purchasing the store. Use the revenues you relied upon when making the credit decision and if the borrower has a history. If it is a new corporation formed for the purpose of purchasing the business the new business won't have any revenues. Don't use pro forma p&l's - only actual history for this purpose
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#2215028 - 06/05/19 05:53 PM Re: CRA GAR ckme
WABComply Offline
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Posts: 218
What if borrower forms a new entity. Purchases established business. Seller's revenue is listed within the approval and Bank bases projections of that revenue. That revenue must be reported correct?

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#2215046 - 06/05/19 06:52 PM Re: CRA GAR ckme
WABComply Offline
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Joined: Jul 2017
Posts: 218
Len S. Nevermind, I located pretty much the same conversation we had prior. As it is a new entity it is zero unless there is a parent. In this case the borrower does own another business but the revenue was not used in determining credit even though they are listed as a guarantor.

Thanks anyway.

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