504 Loan question

Posted By: Lori01

504 Loan question - 05/12/22 07:11 PM

We have a deal where we did a loan for over $1 million to purchase a business, ten year term. Plus we did a smaller loan, under $1 million, as shorter term financing, while the borrower was waiting for an SBA 504 to come through. Our term was one year, but it paid off in about two months.
I believe I can claim the larger loan as community development. My question is should I claim the smaller loan as a small business loan?
Technically they are for the same property. So what concerns me is I don't want it to look like I'm inflating my small business loan volume by doing two loans for one deal. Plus the smaller loan is really a bridge loan.
On the other hand, nowhere in the reg does it say how long the loan has to be out there. We lent the money, the customer used them money, then paid us back. Just like any other loan.

In a different example, I have two loans for the same business and both are under $1 million, Can I claim both as small business loans?
Posted By: Len S

Re: 504 Loan question - 05/13/22 08:29 PM

Quicky - it sounds like you are asking about temporary financing by your bank of the CDC part of the 504 loan. That would qualify as a separate loan even if it is short-term. Usually, 504 loans qualify for CD credit but be sure to specify what definition of CD applies. The challenge with the small loan is it may be a small business loan if it was extended to the business borrower. If you are an ISB however, you may, on a loan by loan basis for ISB examination purposes, have loans that are both CD and small bus loans treated as one or the other for exam purposes only (if you voluntarily report your lending you would report a small bus loan that is also a qualified CD loan as a small business loan).

It's perfectly confusing, right!

Two small business loans to the same borrower can be claimed as 2 small business loans unless they are refi's or renewals in which case they are limited to the once-per-year rule.
Posted By: Lori01

Re: 504 Loan question - 05/16/22 04:00 PM

Thanks Len! I was talking about the short-term loan. A few folks at my bank who used to do CRA years ago seemed to think that temporary, short term or "bridge loans" are not reportable. Seems like that was guidance they were given by examiners at some point. However there is nothing the the regulation or the Q & A that I can find now days that indicates anything about the required length of the loan.

We are a large bank and this loan is less than $1 million, however we have booked it as a 1a2, construction loan for the Call Report, so I would not report it as small business anyway. (Although I question why our lender says it's construction, its really cosmetic work in a hotel.) Our SBA partner gave me some great documentation on why THEY are approving the 504 as CD, so I'm set to go on that part.