In the early years of CRA, community activists, lenders, and regulators focused on home lending activity. This was partly because HMDA data was available and because neighborhood organizing usually started with the issues of housing, crime prevention, and other community empowerment endeavors. As CRA enforcement and activism evolved over the years, the importance of small business development became apparent. Home mortgage and repair lending by itself could not revitalize neighborhoods. Small business and economic development are also necessary components of a comprehensive neighborhood revitalization strategy. But how could revitalization initiatives be planned well in the absence of data on small business and community development lending? Thus, when the CRA regulations were revised in 1995, small business and community development data disclosure requirements were added.
The new CRA regulations mandated that banks and thrifts release data on small business, small farm, and community development lending activity starting with the 1996 data. The small business and farm data will be helpful in ascertaining lending patterns and unmet credit needs, but will have discernible limits unless additional data disclosures are mandated. The small business and farm data resembles pre-1990 HMDA data. In other words, the data includes only the census tract in which the small business loan was made. It does not include information on the gender, racial, income (or sales) characteristics of the business borrower. While community groups and researchers will be able to track small business credit flows into low- and moderate-income neighborhoods, they will not be able to determine whether the actual loans are received by small, locally-owned enterprises or franchises of corporate chains. Despite its limitations, the new small business data will improve the overall data available to community groups for evaluating the CRA performance of lending institutions.
The CRA regulations also require that lenders release their aggregate community development lending data. This is data on the number and dollar amounts of community development loans for social service facilities, economic development projects, and affordable housing initiatives.
What Data is Available
Who Reports Small Business and Farm Data
Banks and thrifts report small business and farm data, and community development data if they have total assets greater than $1 billion dollars (asset level adjusted annually for inflation starting in 2005). Prior to 2005, institutions with asset levels above $250 million were required to report this data. While the CRA regulations require the largest lenders with most of the industry’s assets to report, the regulations miss the lending activities of the small and mid-size banks whose commercial loans portfolios tend to consist mostly of small business loans. In addition, smaller banks may be the most pre-disposed towards lending to the smaller, locally-owned businesses. Thus, an important part of the small business lending picture is missing until more data disclosures are mandated. Some small and mid-size banks voluntarily continue to report this data. NCRC will seek to reverse the exemption from reporting for banks with assets under $1 billion.
Aggregate Small Business and Farm Data
Small business loans are defined as loans in amounts of $1 million or less. Small farm loans are defined as loans in amounts of $500,000 or less.
The data is organized by county within metropolitan statistical areas as well as for non-metropolitan areas. It will list the number and dollar amounts of all small business loans by census tracts. For counties with less than 500,000 people, the census tracts are grouped by income categories: low-income (up to 50% of area median income), moderate-income (50 to 80% of median income), middle-income (80 to 120% of median income), and upper-income (120% and above of median income). For counties with 500,000 or more people, the census tracts are grouped by increments of income levels (10-20 percent of median family income, 20-30 percent of median family income, etc.)
The loans are reported in different size categories – under $100,000, $100,000 to $250,000, and $250,000 and above. In addition, the data includes originations and purchases of small business loans to businesses with less than $1 million in gross annual revenues. Finally, detailed data on purchases of small business and farms loans is also available in the same dollar categories (under $100,000, $100,000 to $250,000, etc.)
Small Business and Farm Data by Lender
Data on small business lending is presented in a similar manner for individual lenders as for lenders in the aggregate with one notable exception. Data for an individual lender will be grouped by income categories of census tracts, but the data will not be disclosed by individual census tracts. Thus, community groups and citizens will know how many loans a particular lender made to all low-income census tracts, but will not be able to determine how many loans were made by a bank in their neighborhood which may consist of three census tracts, for example. This is one major data limitation which should be revisited by the regulatory agencies.
In reports called “assessment area activities,” lenders will also report small business and farm loans by assessment areas that they have defined for their CRA examinations. The assessment areas may be one county or more than one county.
Renewals, Refinancings, and Lines of Credit
A renewal of a small business loan is extending the maturity of the loan. A refinancing is replacing the original loan with a new loan that may have a lower interest rate. A line of credit is a specified dollar amount that a customer can borrow. It is not a loan that is immediately available for the customer to use. Instead, the customer has the ability to draw down from the line of credit at any time.
Unlike HMDA data, small business data does not have separate categories for refinancings, renewals, or lines of credit. The Federal Financial Institutions Examination Council (FFIEC) has therefore provided guidance in Section 42 of the Interagency CRA Question and Answer document regarding how to report refinancings, renewals, and lines of credit. A bank, for example, reports a line of credit as a loan origination in the small business data.
Each year, a bank can report one refinancing or renewal of a previous loan or line of credit as a new small business loan. If the bank increased the loan amount during the refinance or renewal, it also reports the amount of the loan increase as a new loan. The Interagency Q&A provides an example of an original loan for $25,000. On this loan, the borrower has paid $10,000, meaning that $15,000 is outstanding. Then the bank refinances the loan and also provides $5,000 more to the borrower. In this example, the bank reports two new small business loans: 1) the refinance of $15,000, and 2) a new loan of $5,000.
This reporting procedure started with the 2001 data. The small business data for 2000 and earlier included refinancings as loans but not renewals. Also, the FFIEC had not established the “one refinancing or renewal per year limitation” for the year 2000 and earlier data.
Small Business and Farm Data Reporting for Rural Areas
The 1996 and 1997 data will have some inaccuracies in instances where a borrower provided a rural route number, PO Box, or post office address instead of a street address. The actual location of the small business may differ. Starting with the 1998 data, lenders will be required to ask applicants for the actual location (census tract) of the business. In cases where lenders do not know the location of the business, they will report the location as “NA” or not applicable. The number of “NA” loans crept up in 1998 as a result.
Action Categories
The small business and farm data includes only actual loan approvals (or originations). It does not report on whether the application was denied, withdrawn by the applicant, incomplete, or whether the loan was approved but not accepted by the applicant. The data, therefore, does not capture the complete demand for small business and farm loans by low- and moderate-income census tracts; that is, it does not show how many total businesses wanted loans (those who were denied loans as well as those who received loans).
Community Development Data
Lenders report the total dollar amount and number of their community development loans. Community groups can compare the total amount of community development lending of banks and thrifts. At this point, however, community development lending is not reported by census tracts, making it difficult to analyze such lending in specific neighborhoods.
How to Obtain the CRA Small Business Data
NCRC uses CRA Wiz produced by PCI Services, Inc. to produce small business data reports for NCRC members. Contact us on (202) 628-8866. Also, the Federal Financial Institutions Examination Council (FFIEC) places the data on its Internet site, ffiec.gov. The FFIEC also sells CD-roms.
