Hi All,

Are all SBA 504 Loans considered community Development loans, under the community development loan test for an ISB bank? If they are considered community development loans, does it matter if the location of the SBA 504 loan is outside of the bank's assessment area?

The interagency q and a address these in examples of community development loans:

Loans to:

Businesses, in an amount greater than $1 million, when made as part of the Small Business Administration’s 504 Certified Development Company program.

The $1MM is restriction is mentioned because if the loan amount is less than $1MM the loan will likely be reported as a small business loan.

Regarding outside of assessment area, the bank must have met the credit needs of its AA. So if you have made sufficient efforts inside the AA, those outside can be counted. If you blew off the AA, those outside won't count unless there are some extenuating circumstances described in your context.

Another question regarding SBA 504, does the entire amount of the financing qualify as Community Development? For example bank provides permanent financing for 50%, and SBA 504 40% and borrower contribution of 10% to complete the entire financing package. Will examiners consider both the bank's portion and the SBA 504 as CD loans or will only the SBA portion count?

The entire loan is considered, not just the SBA portion. The bank's portion is also providing benefit to the community.

Our examiners wanted to see the impact of the SBA504 loan as well - job creation, retention etc. They didn't just carte blanche give credit without the reasoning behind the loan.

I would never present any loan to an examiner without full write up, documentation, proof.

For a large bank, 504 loans only qualify as community development if they are over $1 million, just like any other community development loan, right?? I find it frustrating that you work hard to originate/identify these loans and then a large portion of them don't count since they are less than $1 million.

So you do count the entire loan amount regardless if the banks portion is under 1MM. If the total SBA 504 loan is over count the entire amount?

I wanted to revive this topic. I swear that when our examiners (FDIC) were here last year, they said the GAR of the borrower had to be under $1 million, and the SBA 504 over $1 million. They disqualified one of our SBA 504 loans over $1 million because they borrower had GAR of over $1 million and the location was not remotely close to any LMI areas. We are a large bank reporter. Thank you!

They would be wrong--GAR is not the only justification when meeting them size test. You also can utilize SBIC or SBDC to determine eligible size. But, because this loan is greater than 1MM it no longer falls under small business, and is now considered under the lending test, or community development test.

Banks making 504 loans may qualify for CRA consideration. In most cases, loans of $1
million or less qualify as small business loans and may be considered under the CRA
lending test for banks of all sizes.15 Intermediate-small banks may choose to have small
business loans of $1 million or less, which meet the regulatory definition of community
development, evaluated as community development loans.16 Loans of greater than $1
million made under the 504 program are considered community development loans17
either under the lending test18 or the community development test,19 depending on the
bank’s size.

https://www.occ.gov/topics/community-affairs/publications/insights/insights-occdmrm-504.pdf (Page 7)