Small Business Loans

Question: We are denying a loan to a small business. Last year the business had $0 revenues although now it has a modest revenue stream. The loan officer takes the position that because there were no revenues last year, there is no requirement to send an adverse action notice. I disagree. Would you settle this disagreement?

Answer: We'd be delighted to settle it: you are right and the loan officer is wrong. ECOA and Regulation B require notification to all applicants for credit. Although there are special rules for small and not-small business notifications, there are no absolute exceptions - none! The only reason for the income guideline in the regulations is to distinguish between small businesses that are presumed to need more help and large businesses that are presumed to have more experience with credit. Clearly a business that is just starting needs the most help of all. There is no exception for a business that does not yet have any income. To fail to notify such a business of a denial would be inexcusable.

Copyright © 2004 Compliance Action. Originally appeared in Compliance Action, Vol. 8, No. 16, 1/04