For banks interested in obtaining Community Reinvestment Act (CRA) Credits, there are new changes ahead that will make it easier! On October 24, 2023, the Federal Reserve, the FDIC, and the OCC issued a Final Rule amending the agencies’ Community Reinvestment Act (CRA) regulations. The agencies are adopting the proposed regulations with minor changes as it relates to bank loans made in partnership with the SBA 504 loan program. The Final Rule is effective April 1, 2024.
Community Reinvestment Act (CRA) Credits with the SBA 504 Loan Program
In the Final Rule, any bank loan made in conjunction with the SBA 504 loan program will automatically qualify as economic development and meet the Community Development Financing Test for Community Reinvestment Act (CRA) credit. This includes bank loans made for the interim financing and the third party loan. As detailed under the “Final Rule” heading beginning on page 191, the agencies are adopting, with revisions, the proposed “Community Development” category of economic development by establishing three components –
- Government-related support for small businesses and small farms (final § __.13(c)(1)), which includes activities undertaken in conjunction or in syndication with Federal, State, local, or tribal governments and comprises two subcomponents:
- Loans, investments, and services other than direct loans to small businesses and small farms (final § __.13(c)(1)(i)); and
- Direct loans to small businesses and small farms (final § __.13(c)(1)(ii)).
- Intermediary support for small businesses and small farms (final § __.13(c)(2)), which provides for support to small businesses or small farms through intermediaries.
- Other support for small businesses and small farms (final § __.13(c)(3)), which addresses for other assistance to small businesses or small farms, such as financial counseling, shared space, technology, or administrative assistance, to small businesses or small farms.
We hope this encourages bank lending to small businesses as a community development activity promoting economic development and job creation.
For purposes of the SBA 504 loan program, component 1.b. above applies – “Direct loans to small businesses and small farms.” Bank loans to small businesses made under the SBA 504 loan program (both the interim financing and the permanent third party loan) must meet a size test and a purpose test to qualify as economic development under the Community Development Test.
- Size Test – the small business receiving the loan must be “small” under traditional SBA size standards – either the industry or alternative size standards can be used. All small businesses receiving 504 financing meet this requirement.
- Purpose Test – the loan proceeds must be used to promote permanent job creation or retention for low- or moderate- income individuals or in low- or moderate-income census tracts. The Final Rule establishes that loans made in conjunction with a CDC or SBIC presumptively qualify under the purpose test – “loans that are made by a bank directly to small businesses or small farms in conjunction or in syndication with a Small Business Development Company (this refers to CDCs and the 504 loan program) or a Small Business Investment Company (SBIC) presumptively qualify under this prong….”
Additionally, other loans to small businesses can qualify under the new “Retail Lending Test.” Any size loan to a small business with $1 million or less in gross annual revenues can qualify for CRA credit under this test. Under CRA’s previous “small business lending test,” loans of $1 million or less made to a small business with $1 million or less in gross annual revenues qualified for CRA credit; loans larger than $1 million were eligible to be considered economic development loans under Community Development. And in the Final Rule, the agencies have agreed that certain loans to small businesses may be considered under both the new Community Development Financing Test and the new Retail Lending Test, if they qualify under both tests.
We hope this encourages bank lending to small businesses as a community development activity promoting economic development and job creation.
Important Links about This Change to Community Reinvestment Act (CRA) Credits:
- TI Memo 11-24
- Federal Register Notice of Final Rule
- Fact Sheet on CRA Final Rule
- Overview of CRA Final Rule
Why Growth Corp?
We know your success depends on having access to expansion capital that is both affordable and accessible. Our experienced staff takes pride in making a difference in the lives of small business owners and their employees. Start-ups to seasoned businesses and everything in between can benefit from working with Growth Corp. Here’s why:
- We’re the #1 SBA 504 Lender in Chicago and Illinois. Growth Corp also consistently ranks as one of the top ten SBA 504 Lenders nationwide.
- We’re the largest SBA 504 Refinance Lender in the country.
- SBA recognized Growth Corp as an Accredited Lender after a thorough review of its policies, procedures and prior performance. The prestigious ALP status grants Growth Corp increased authority to process and close 504 loans, which provides expedited processing of loan approvals and closings.
- We simplify the loan approval process. Our team coordinates the entire process from application through closing, funding and servicing, making it seamless for you and your bank lender.
- We are SBA 504 Experts. Our responsive and educated staff focuses almost exclusively on SBA 504 loans. We’ve got the process down to a science!
- We’ve worked with thousands of businesses, spanning various industries. That means, there’s not much we haven’t seen. Your goals, project structure and business type will likely be familiar to us and we’ll understand your unique situation.
- Our mission is to advocate for small business. We love our communities and believe small business is the foundation of their economic prosperity. We will do all we can to support you and your business goals. Connect with someone from our lending team today!