Answer:
If the bank relied upon the income of the various related partnerships in evaluating the credit risk, it should report the revenue (gross sales/gross customer receipts) of all. If it only looked to the income of the business directly benefiting from the loan, then the revenue of that business should be used. Revenue does not mean net income or distributions. It is gross sales/receipts before expenses.
From the CRA 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 adjustthe borrower’s revenues for reporting purposes.
First published on BankersOnline.com 11/01/10
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