When reporting revenue on the small business LAR can you please clarify the following for me:
We have a loan program called "Low Doc" in which financials are not used in making the credit decision based on a number of factors, however we do have the revenue information from the customer. In order that these loans are not reported as a code 3 – and not counted in our CRA totals, is it appropriate in using the business revenues that the customer provided?
A CRA Community Development Loan was included in the last exam cycle for our bank. In 2019 the loan was modified with new money and we added it to the CRA Community Development Loan list again for the current exam cycle. With loan modifications, can we count the total loan amount or just the new money that was added to the original loan?
Is a loan to a company buying stock from an ex-employee CRA reportable? It is secured by business assets.
If we are making a CRA small business loan to an individual that operates as a sole proprietor and who does not have any schedules as part of their tax return, can we use the personal income as the gross revenues since we relied upon that personal income in making the credit decision, or would this not be a reportable loan?
Risks associated with paper-only CRA public files?
How many of the “hooks” do you have to hit in order for a loan to meet the definition of community development?
Geo-coding on loans, do you use the collateral address or customer address?
A few years ago our credit department stopped doing a financial analysis on renewals under $250K and as a result we have to record gross revenue data on a lot of our loans as a 3 (or NA) because we don’t have financials to go off of. Needless to say, our performance in lending to small businesses with annual revenues of under $1MM is suffering as a result.
A solution we explored was to request that borrowers provide the combined revenues of all entities they have ownership in when financials are not required, use this data as an "indirect" underwriting measurement to identify red flags, and report it for CRA purposes. (This as a way to attempt to incorporate it into the underwriting process so that it could legitimately be stated that we used it to help make the credit decision - a requirement of the regulation.)
Does the process of requesting and using this gross revenue data as an indirect underwriting review without having financials create any risk for the bank?
Without collecting financials and performing a financial analysis, is there a way to help ensure that we collect accurate, consistent gross revenue data?
Here are some concerns:
1. What if a keying error is made and there are no financials to validate the information off of? (Collecting data this way feels ‘sloppy’)
2. What if a business owner inflates revenues in hopes that they will receive better rates?
3. What if we have current financials in the file, we ask for the revenue figure and what we indicate on the underwriting form does not match (roughly) what is on file?
Finally, below is an example of where this can get sticky... and why I'm finding it to be near impossible to collect gross revenue data on more of our loans and feel any sort of confidence that we are getting accurate data. Am I missing an easy solution to this quandary?!
Case Study: Nick is a physician at Surgery Center and has ownership in the practice. Nick received a $100K line of credit in 2014. When underwritten, we considered Nick’s wages (which are recorded as gross revenue of “NA” for CRA purposes). When Nick’s loan renews in 2016, financials were not gathered (because it’s under the $250K threshold). If the Surgery Center had gross sales in 2015 of $900K and Nick’s wife started a spa in 2015 that had sales of $200K, what number should our indirect underwriting review capture? Should it be:
A. His wages because we are not relying on Surgery Center revenues to be repaid? (Gross Revenue = NA)
B. $900K, the revenue of the Surgery Center? (Gross Revenue = 1, $1MM or
C. $1.1MM, the revenue of Surgery Center and the spa business? (Gross Revenue = 2, over $1MM)
I think the answer should probably be consistent with the wages or revenues we’re relying on to be repaid – but our admins/lenders will not know this so my fear is that because we are not legitimately relying on it for underwriting, we won’t get an accurate record of information for CRA purposes.
If you have a loan in an individual name, the repayment source is business income or global cash flow, what do you use to determine the Revenue Code for CRA reporting? The cash flow shows his individual wages are $50,000, two businesses are also listed on his cash flow, one shows total sales is $250,000 and the other is $1,100,000. What would the revenue code be?
With regard to reporting non-dwelling secured or unsecured business loans for CRA credit, what are the characteristics of a modification versus a renewal?