Actually, I think I found it - not that it helps much.

13 CFR 121.105:
§ 121.105 How does SBA define “business concern or concern”?

(a)

(1) Except for small agricultural cooperatives, a business concern eligible for assistance from SBA as a small business is a business entity organized for profit, with a place of business located in the United States, and which operates primarily within the United States or which makes a significant contribution to the U.S. economy through payment of taxes or use of American products, materials or labor.

(2) A small agricultural cooperative is an association (corporate or otherwise) acting pursuant to the provisions of the Agricultural Marketing Act (12 U.S.C.A. 1141j) whose size does not exceed the size standard established by SBA for other similar agricultural small business concerns. A small agricultural cooperative's member shareholders are not considered to be affiliates of the cooperative by virtue of their membership in the cooperative. However, a business concern or cooperative that does not qualify as small under this part may not be a member of a small agricultural cooperative.

(b) A business concern may be in the legal form of an individual proprietorship, partnership, limited liability company, corporation, joint venture, association, trust or cooperative, except that where the form is a joint venture there can be no more than 49 percent participation by foreign business entities in the joint venture.

(c) A firm will not be treated as a separate business concern if a substantial portion of its assets and/or liabilities are the same as those of a predecessor entity. In such a case, the annual receipts and employees of the predecessor will be taken into account in determining size.

With the breakdown of implementing this new reporting, I'm understanding:

o Large Lenders (2,500+ loans): October 1, 2024;
o Medium Lenders (500 - 2499 loans): April 1, 2025; and
o Small Lenders (100 - 499 loans): January 1, 2026.

Does this mean large lenders would have had 2,500+ loans in 2022 & 2023? Or do you start counting loans on 10/1/24?

You look at 2022 and 2023. Here's the link to CFPB's info sheet about compliance dates:

https://files.consumerfinance.gov/f/documents/cfpb_sbl_info-sheet-regarding-compliance-dates.pdf

With the new threshold for collecting and reporting, do we begin following the new threshold for GAR starting October or do we start now.? Also, if you did not meet the threshold of 100 in the prior year and we don't believe we will meet the threshold this year, are we exempt from reporting in March 1, 2024?

Appreciate your guidance.

The final rule has not been published in the Federal Register. The effective date is 90 days after date of publication in the Federal Register. Until then, you wait and plan.

If you don't meet the 100 loan threshold, you do not need to worry as you need to meet the threshold for 100 in both 2022 and 2023. If you fall below, you do not have to report. You do need to track how many loans you make to see if you hit the thresholds going forward.

Correct, large lenders would need to meet the 2,500 loan threshold in both years. The October 1, 2024 date is when you start collecting the information that will be reported.

This might be a dumb question, but I am generally full of them. I have been waiting for this to be published in the Federal Register, but I have not seen it yet. Normally they are not 4 weeks behind. Has this changed?

No. This is unusual. If I had to guess, it may not come out until October. I will probably be wrong, but publishing October 1 would mean the effective date is January 1.

In Appendix F to Part 1002 there is a table showing the "Tolerance Threshold for Bona Fide Errors". It ranges from 2.5% to 6.4% based on the volume of records reported in the Small Business Lending Application Register Count. But it is based on sampling size (which is related to the record counts)..The error rate thresholds sound reasonable but you should understand that they are based on sample sizes ranging from 47 records to 159 records so the error counts are only 3-4 records per data field.

My turn for a dumb question. It was hinted to me that it may not happen because it's not in the Federal Register yet. Is it possible for it to just not be published in the Federal Register? Is it crazy to at least be trying to come up with a way to track these now if it hasn't been published in the Register yet?

Unless it is not published by 90 days prior to the first effective date of Oct 1, 2024, I am not sure how it would be delayed.

DATES: This final rule is effective [INSERT DATE 90 DAYS AFTER DATE OF
PUBLICATION IN THE FEDERAL REGISTER].

Compliance dates: Covered financial institutions must comply with the final rule beginning
October 1, 2024, April 1, 2025, or January 1, 2026, as set forth in § 1002.114(b).

Okay, stupid question time.

If we don't get the GAR for a non-originated application, how are we supposed to determine if it meets the definition of small business? We apparently have the option of saying that the GAR was not obtained for that data point, but without the GAR we also don't know if it even has to be reported. So is everyone going to make the GAR 'required' in order to call it an application and without the GAR it is just an inquiry and doesn't have to be reported? Or are we supposed to assume that every application that we didn't get a GAR has to be reported?

Maybe the answer is in the rule somewhere and I just haven't run across it yet (or overlooked it) - I am only up to page 384.

It is code 988 for Field 36. Filing instructions page 37 gives some insight. Basically, you still report, but report it wasn't provided or able to be determined.

So what you are saying is we may have an application from a business with a GAR of $25M but because we didn't get the GAR and it wasn't originated, we are still supposed to report it as a small business loan anyway and gather all the information we can like it is a small business.

Yeah, that should skew the data nicely.

In the next couple years, I would start a process to gather that information from the borrower at application. I don't know how any bank required to report will get away with not having a more robust application process that will likely include a written application (or electronic equivalent). There's too much information required too early in the process.

Agree with Inherent Risk - clearly, we will need to know if we have a reportable application from the get go. Be prepared to include a field on your business loan application or have a means to collect the information - perhaps with a statement from the applicant. If you don't do this, you risk not obtaining the required monitoring information. The statement could be as simple as asking the applicant if their GARs are over/under $5M. But when you go to report you will need the actual amount and if not known you do what CB#3 indicated - report that the GARs are not known.

In other words, you must determine at the time of application if the applicant is covered by 1071. This will dictate if the required monitoring information applies.

Training commercial lenders is going to be lots of fun!

The CFPB made it clear in the preamble they expect lenders to ask for the information required to determine if an application is for a "covered transaction" that's not excluded in 104(b). Any institution that extends commercial loans of any volume approaching 100 originations per year will need to collect that information, even if they are not a covered lender because the determination of covered lender status is made every year in light of the volume of covered transactions for each of the last 2 calendar years.

These determinations are made all the more confusing by the fact that what's included depends if you are a covered lender or not a covered lender. Moreover, the exclusions cited in 104(b) are not all inclusive. There are additional exclusions cited in the Official Interpretations relevant to that subsection.

I've had several discussions with CFPB attorneys about these issues and more. Even the attorneys can't answer every question. I've already broadcasted one webinar about 1071 and we are planning on another. We also are starting a blog. During the webinar there were lots of good questions from lenders.

(b) A business concern may be in the legal form of an individual proprietorship, partnership, limited liability company, corporation, joint venture, association, trust or cooperative, except that where the form is a joint venture there can be no more than 49 percent participation by foreign business entities in the joint venture

Okay, question here....does the 'individual proprietorship' part of the definition above cover those loans to John Farmer as the borrower to purchase a tractor for his farming business? In some States, proprietorships have to be registered with the Secretary of State or Dept. of Revenue but other States do not require it. Are they including the 'proprietorships' that are registered only?

Why can't we have one rule that covers all reporting and all definitions the same.....too easy????

crcmnot, that is the big question I've come down to as well. (cross reference this thread.) In talking with my SBA lenders, an "individual proprietorship" includes John Farmer acting just as an individual in his ag operations without any formal business filing.

Randy Carey (in that other thread) also gives credence to an individual proprietorship being broadly defined, and not requiring a state filing of some sort.

But I haven't yet found anything official.

I actually have a question into the CFPB on this topic. If I ever get an answer, I'll share with this group.

I too am concerned because my interpretation was that any sole proprietor loan could qualify, whether it was purchased on an account that is designated as a commercial account or not. We don't do commercial lending, and don't have a large number of business accounts, but we are located in an ag community.

I brought my "theory" about what this meant to my supervisors, but their interpretation of it differs from mine.

If a farmer applies for a loan to purchase a tractor to be used on his 6-acre farm, whether he is running a business concern for profit as a sole proprietor likely will depend on what he is doing with whatever he is raising on he 6 acres. If he sells it, he's likely a for-profit business and the loan will be covered under the rule. If instead of selling the output he feeds his family with it, it's a consumer-purpose loan.

Ah, it's the Colorado ice law. If you use ice to preserve food, it's non-taxable, but if you put it in a beverage, it's taxable. (it's been a few years - maybe the ice law has been amended)....

You need to chase down the rabbit hole of 1002.106 for the list of organizational types. Sole proprietorship is listed.

I'd keep it simple. Unless the transaction fits into the excluded transactions or the business exceeds the limit, it's probably going to need to be reported if it's business or ag purpose.

This is a pond of dirty swamp water