HELP! Working on expanding CRA policy and training lenders now that we are reporting as a large bank. Issue on using individual income to repay a loan coded as a business loan. Think we have everyone convinced and in agreement on gross annual revenues - now this comes up! Can someone out there please provide a clear definition. Would a doctor applying for a loan to be used for the purchase of a new piece of equipment to be used in his office be a good example; we code the loan as a business loan but it is to be paid from his personal income. Am I the only one out there having to struggle with issues like this.

CRA is looking for the size of the business (by using revenues) not how much the business makes (income) or how much the owner makes. You should use the revenues on the business's statement or if the lender didn't require a financial statement then indicate that revenue was not considered in the making of the loan.

What she said

And...just to confuse you a tad. Walk that lender through their thought process. If the doctor is purchasing equipment for their practice, and the lender is using their personal income from that practice as repayment...aren't they really looking to the revenues of the practice? A lender with a brain says "I'm lending because the practice pays this guy a paycheck...practice closes, paycheck dies, loan goes south". Or another lender says "Ehhh it's personal income, who cares where it comes from".

In the case you describe I'd actually tell the lender they should be using the revenues of the practice for reporting purposes. The only way they could exclude this would be if the doc works at a local hospital as well and that source of income was used. Otherwise, logic says, the lender really did use the revenues of that practice.

Very good Dawnie, I couldn't have said it better.

Thank you!!!! Please tell me it doesn't stay this confusing forever....

Sorry to disagree and ask you to consider this.

Practice has gross revenue of $800,000 and is a Medical Corporation. Dr is paid $400,000, $200,000 goes into pension fund and $200,000 pays other overhead.

As a loan officer I loan the Dr $200,000 to purchase equipment he will use outside his existing practice. The loan is in his name only. The loan is not to the Corp. I am relying on the $400,000 the corporation pays him as thats the INCOME that will repay the loan.

In many cases you probably will be reporting business revenue, however it won't be in all cases, and IMO there is not a SET rule to follow. It would be on a case by case basis.