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Revenue for CRA Small Business Loan

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Question: 
When deciding which revenue to use for a CRA small business loan for an individual who files a schedule E-partnerships with passive and non passive income, and also receives K-1s for that company, how do I decide which revenue to use? Do I use line 30 or 31 as appropriate, and add the K-1 distribution back, or do I just use the K-1 distribution amount?
Answer: 

If the bank relied upon the income of the various related partnerships in evaluating the credit risk, it should report the revenue (gross sales/gross customer receipts) of all. If it only looked to the income of the business directly benefiting from the loan, then the revenue of that business should be used. Revenue does not mean net income or distributions. It is gross sales/receipts before expenses.

From the CRA Guide: Generally, an institution should rely on the revenues that it considered in making its credit decision when indicating whether a small-business or small-farm borrower had gross annual revenues of $1 million or less. 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, it should not adjustthe borrower’s revenues for reporting purposes.

First published on BankersOnline.com 11/01/10

First published on 11/01/2010

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