Compliance Alliance Question of the Week

Question:
If we collect personal income from a Guarantor of a Small Business Loan, should we include this loan on our CRA Report and indicate it as a small business loans with gross revenue of less than $1 million if the personal income is under that threshold?
 
Answer:
No--the guarantor's personal income should not factor into whether the loan qualifies as a small business loan. The guarantor's income does not affect the gross revenues of the business.
 
SECTION __.42(a)(4) – 1: When indicating whether a small business borrower had gross annual revenues of $1 million or less, upon what revenues should an institution rely?
 
A1. Generally, an institution should rely on the revenues that it considered in making its credit decision. 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, the institution should not adjust the borrower’s revenues for reporting purposes.