CRA Revenues- Individual Borrowers

Posted By: clarkgriswald

CRA Revenues- Individual Borrowers - 07/12/16 05:57 PM

I'm the new CRA Officer for the Bank and I've been reading the FAQ's and other sources, but I continue to receive questions regarding how to report Gross Revenue so wanted to see if I'm on the right track.

I understand that the purpose of documenting gross revenues/sales (not income!) for CRA is for examiners and the public to determine the size of the business we are doing business with. That being said I want to lay out a couple of scenarios and see what others think.

1). Loan is being made to a physician for the purpose of investing in a medical company. At the time of buy-in the physician will not have earnings from the medical company that he/she is buying into. The physician is underwritten based on personal financial information and the financial statement of the income generating business they are buying into. What should we use as Revenue Source? My thought is to use the revenue from the medical company that the doctor is buying into. Would the analysis change if the doctor already had existing shares of the company and was purchasing more shares? I say no.

2). Loan made to an individual who is a partner in a business. That individual will own 10% of the business. The revenue of the business for 2015 was $10 million. Should the revenue be prorated (10% of his portion is $1 million) for gross revenue? I say no I think the proper number to use is the $10 million.

Any feedback is much appreciated.
Posted By: KelliD

Re: CRA Revenues- Individual Borrowers - 07/12/16 06:52 PM

Since GR is all about determining the size of the business, you always have to look to the business of which the loan proceeds will benefit.

Scenerio 1 - I agree with your assessment. If we have the finanical info of the medical facility of which the Dr is purchasing shares, we use it to report GR.

Scenerio 2 - The loan proceeds benefit ALL of the business so yes, I would use the $10M for GR.

I'm new & learning as you are so good luck! This has been a valuable teaching tool for me in the past year+.
Posted By: kansas9839

Re: CRA Revenues- Individual Borrowers - 07/13/16 01:07 PM

You are spot on with your analysis on both. I am also new as well.
Posted By: Breeco

Re: CRA Revenues- Individual Borrowers - 07/26/16 08:10 PM

1) Will your bank go to the medical co for repayment when the loan goes south--probably not, so you should only be considering the revenues of the borrower. The medical company is not your borrower and it has no stake in the loan. The underwriter is using what the industry likes to call "creative financing", but that does not mean it is appropriate for CRA revenue reporting.

2) Same case as above. The loans are to buy a business or portion of the business. The business is not borrowing.

Look at individual revenues in each case.
Posted By: Ryan Yager

Re: CRA Revenues- Individual Borrowers - 08/24/16 08:25 PM

I agree with MiniMee.

1.) Sounds like a personal investment loan to me and therefore not reported as a small business loan.

2.) Assuming purpose of loan was to purchase the 10% of the business, again, a personal investment loan and not reported as a small business loan.