CRA and Loan Location

Issue/Inquiry

The Bank has made a commercial loan secured by two residential properties owned by the borrower, which leases the properties to individuals. One of the properties is located in the Bank's CRA assessment area, but the proceeds of the loan are being used for capital improvements to the property that is outside the assessment area.

Can this loan be counted as having been made in the Bank’s CRA assessment area?

Response Summary

The location of a small business loan is either where the loan proceeds were applied or the headquarters of the borrower.  If the loan cannot be counted as a small business loan, it might still be considered as a community development loan, if certain criteria are satisfied.

Response Detail

The answer to the Bank’s question will depend on the determination of certain facts.

Under Regulation BB, which implements the Community Reinvestment Act (“CRA”), a small business is located in the geography where the main business facility is located or where the loan proceeds otherwise will be applied, as indicated by the borrower. A “small business loan” is a loan included in “loans to small businesses,” as defined in the instructions for preparation of the financial institution’s Consolidated Report of Condition and Income. 12 CFR §228.12(o)(3),(v).

For example, if the proceeds of a small business loan are used in a number of different locations, the loan would be reported for the location of the borrower’s headquarters or where the greatest portion of the proceeds were applied, as reported by the borrower. Interagency Questions and Answers Regarding Community Reinvestment, §____.43(a)(3) – 1.

In this case, the loan proceeds were applied outside of the Bank’s CRA assessment area. If the loan is a small business loan, however, and the headquarters of the borrower are inside the CRA assessment area, the Bank can still report the location of the loan as being within the assessment area.

If the loan cannot be reported as being within the CRA assessment area, the Bank may still want to determine whether it can be considered as a community development loan, which includes loans for:

• Affordable housing (including multifamily rental housing) for low- or moderate-income individuals
• Community services targeted to low- or moderate-income individuals
• 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. 12 CFR §228.12(g).

The size eligibility standards for a business having the SIC code number of 531110 (Lessors of Residential Buildings and Dwellings) is $27.5 million. 13 CFR §121.201.

Community development loans are among the CRA performance criteria for small intermediate banks, which have an asset size of at least $304 million as of December 31 for each of the prior two calendar years and less than $1.216 million as of December 31 for either of the previous two calendar years. 12 CFR §228.26(c); FFIEC, Explanation of the Community Reinvestment Act Asset-Size Threshold Change (2016).

A retail institution will receive consideration for community development activities that benefit geographies of individuals located within a broader statewide or regional area that includes the institution’s assessment area, even if they will not benefit the assessment area, as long as the institution has been responsive to community development needs and opportunities in its assessment area. Interagency Questions and Answers Regarding Community Reinvestment, §____.12(h) – 6.

This entry was posted on Monday, October 31st, 2016 at 1:34 pm.