We have a loan over $1MM to construct a convenience store. It is in a middle income tract. It will create 35 hourly wage jobs. Any chance at a CDL on this?

Also - we have a loan over $1MM to construct a fast food restaurant that is also in a mid income tract with hourly wage workers. Any thoughts on CDL credit for this one as well?

Also - we have a construction loan for a "Dollar Store" in a moderate income area. CDL?

I've gotten credit for all of the above if I was able to show that:

1) the jobs that were created were for LMI individuals (an email from the owner with salary information on the jobs that were created has sufficed in the past); and

2) the business to which the loan was made had gross annual revenues of $1 million or less.

The gross annual revenues don't matter - in fact depending upon collateral and size of bank it would put the loan into the CRA Type 1 small business category. I mention size of bank because of special rules for ISBs.

CD loans can be to any size company, but if a loan is CRA Type 1, it must be CRA Type 1 (unless under rule for ISB). Construction loans in and of themselves cannot be used for jobs creation. The permanent business financing can be used for jobs creation.

I can't imagine why in the world the GAR would matter but at our recent exam, they asked for them.

I provided them without question but have no idea what they thought they would use them for.

You should also find out if the jobs are going to LMI not just minimmum wage jobs. If the jobs are open to anyone you may find it a harder sell

For what it's worth, I agree with Kaybee on the construction loan not being for job creation, but since it's in a moderate income tract I would definately consider it revitalization of a LMI area.

(g) Community development means:

(1) Affordable housing (including multifamily rental housing) for low- or moderate-income individuals;

(2) Community services targeted to low- or moderate-income individuals;

(3) Activities that promote economic development by financing businesses or farms that meet the size eligibility standards of the Small Business Administration's Development Company or Small Business Investment Company programs ( 13 CFR 121.301) or have gross annual revenues of $1 million or less; or

(4) Activities that revitalize or stabilize —
(i) Low-or moderate-income geographies;
(ii) Designated disaster areas; or
(iii) Distressed or underserved nonmetropolitan middle-income geographies...

I've always considered "job creation" to fit under the third bullet point of the four possible ways that an activity can qualify as community development. There is a size requirement. I've been denied credit for CD loans because the business's revenues were over $1 million even though the jobs were created for LMI people.

all this evidences there is still way too much examiner discretion and the regulatory agencies applying their interpretations of the regs disperately.....

This evidences total disregard for published guidance. There is no size requirement in the reg itself or the FAQs or in any discussions with or presentations by examiners at conferences including this years interagency CRA Conference. It's giving me a major headache.

The sources for CD loans are loans over a million that obviously cannot be small business and those less than a million that cannot be small business (like construction). This ignores the ISB rules for the purposes of discussion.

I know that you know your stuff, Kaybee. I always trust your answers on BOL. However, how can I argue this with an examiner when this is the definition of community development right out of the reg? Have you come across disregarded guidance that suggests that size does not matter?

Where do you see in the reg that a community development loan must be $1mm or less?

I don't, but that's because that statement isn't true. I thought we were talking about revenues???

We were, I lost it for a moment. Review this thread. The $1mm or less is only one aspect of the size requirement for economic development. There are 2 others that relate to SBA (SBDC and SBIC), which is very liberal.

Review this thread.

http://www.bankersonline.com/forum/ubbth...rue#Post1358254

How big was your borrower, revenue wise?

$1mm or less in annual revenue is only one of the eligibility standards.

The loan does NOT have to be an SBA loan to use those standards, that is just an easy (!!) definition the government latched on to so as to avoid creating yet another size standard.

This SBA info should be plenty to discuss with regulators who want to toss otherwise eligible loans for economic development.

Thanks, KB. That prior thread is very helpful. I can't remember exactly how high the revenues were for the borrower that we did not get CD credit for, but when I have time I'll check to see if they would have qualified under the other size eligibility standards.

It shouldn't be this hard.

Agreed.

memory refresher needed...what is ISB?

Intermediate Small Bank

The size of the business can matter when the community development definition you are trying to apply is "economic development". This is because the loan must be to a "small business" as defined in the SBA regulations or to a business with GAR of $1 million or less. It seems to me that you were trying to get credit for community development under the economic development definition in which case the size of the business is a critical factor.
Also, I have seen situations in which construction loans are considered a form of CD loan by examiners. This is particularly true with respect to economic development loans. Financing the expansion of a business that is going to create permanent new jobs for LMI persons is a legitimate form of CD lending. Examiners are given discretion weighting the value of such loans and may give more credit for permanent financing, but I have seen them give credit for the construction financing too. Don't confuse this with the temporary construction jobs that are created by a construction project however. Temporary jobs are not considered to contribute to economic development under CRA. We routinely tell our clients to research their construction loans for potential CD credit as long as they can demonstrate the creation of permanent jobs for LMI persons or benefiting LMI geographies as an outcome of the project.