If an institution collects current YE financial documents due to a larger lending relationship, but they don't rely upon them in making a credit decision for a loan we are reporting on the CRA LR, can we report the Borrower's revenue for that loan based on the current YE financial documents we possess, or MUST it be what was utilized in the specific loan's credit decision, which none were considered in this case (renewal of internal brokerage-secured loan)?

Furthermore, does your answer also apply to any Community Development Loans we may report as well?

We report the revenue in those situations. It's harder to argue that you had it and it played no role whatsoever in your decision to grant credit, rather than just reporting what you have.

Ditto.

If you have access to revenue information you should report it, regardless of it being used or not in deciding on the loan. When looking at your distribution of small business loans compared to aggregate, anything with a "3" for revenue unknown gets dropped out the calculations and can have a negative effect on your performance.

Revenue information is never used when looking at qualified CD Loans.

Would the same go for income from Guarantors on a loan?

Income from Guarantors has nothing to do with revenues generated by the business.

Perfect!!! Thanks very much RL!

What about corporate guarantors whose revenue was considered in the cash flow calculation, and it appears this was necessary for approval. It also would change it from a Revenue Code 1 to a 2.

I am not sure why the revenues of guarantors have anything to do with the business applicant.

Depends on who the guarantors are. If they are entity affiliates and you used them in underwriting, then I would include them. For example, if your borrower is a newly formed LLC with no or little revenue in the previous year, and your guarantor is a parent company with millions in revenue, then you would include the guarantor.

From the data reporting 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 adjust the borrower’s revenues for reporting purposes.

Hi all,

Riffing off the above, I have a question about affiliated business GAR reporting. If we know the GAR of an affiliate of the business entity is above 1 million, but we do not use that financial information in underwriting the loan, should we consider it as part of the aggregate?

For example, ABC Company is applying for the loan and has GAR below 1 million, but the business owner has another business (XYZ Company) with GAR exceeding 1 million. We only qualify the loan based on ABC Company's financials. Would we still report GAR above 1 million if we are aware of XYZ, but it did not play a role in underwriting?

No, you would base the GAR only on the revenues of the ABC company that you relied upon when making the credit decision.

Thanks, Len! We're a new reporter as of this year and we were second guessing ourselves.