Small Business Data Collection - Iowa Bankers Association

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Covered Credit Transactions

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Small Business Definition

Covered Credit Transactions

Question: Is a letter of credit a covered credit transaction for purposes of the CFPB’s Small Business Lending Data Collection rule?

Answer: No, letters of credit are generally not covered credit transactions because they are not credit. Generally, a letter of credit is an instrument issued by a bank that promises, upon the presentation of certain documents and/or satisfaction of certain conditions, to direct payment to a beneficiary of the instrument. Letters of credit are often presented by buyers of goods who seek to postpone payment until their goods have been received. Some letters of credit are secured by a promissory note and are converted if the customer fails to pay. The issuance of such letters of credit are not extensions of credit. As noted in comments 104(b)-1 and -2, the name used by a financial institution for a product is not determinative of whether it is a covered credit transaction. Accordingly, if a financial institution develops a product that it calls a “letter of credit” that includes an extension of credit (i.e., permits an applicant to defer payment of a debt, incur debt and defer its payment, or purchase property or services and defer payment therefor), that product might be a covered credit transaction. Additionally, if a financial institution extends credit when the letter is presented for payment or an option is exercised pursuant to the letter of credit, that extension of credit may also be a covered credit transaction.

Question: Regarding purchases and participations, if the bank acquires 100% of the loan, not just a portion of the loan, is the purchase still excluded from the definition of a Covered Credit Transaction?

Answer: Yes, purchases of covered credit transactions, purchases of an interest in a pool of covered credit transactions, and purchases of a partial interest in a covered credit transaction are not covered credit transactions (provided the purchasing institution did not have the right to set the final terms of the transaction with the borrower).

Question: Should we include modifications in our covered origination count for 2022 and 2023 if the modification results in an increase in the loan amount or line of credit? Or are modifications with an increase in credit only counted as covered applications once we establish our mandatory compliance date?

Answer: Reevaluation, extension, and renewal requests, even if they request additional credit amounts, are excluded from the definition of a covered credit transaction. Therefore, they would not count toward your covered originations for the purpose of determining your status as a covered financial institution. However, reevaluation, extension, and renewal requests that seek additional credit ARE included in the definition of a covered application. As a result, if you are covered institution subject to the rule, once you begin data collection you would be required to collect and report data in connection with reevaluation, extension, and renewal requests that seek additional credit.

Question: Can you further explain the definition of refinance when the loan number stays the same? For example, we have business LOCs that mature annually but the loan number never changes. We repaper the LOC every three years and do a change-in-terms agreement in the off years. Assuming no new money is advanced, would we classify the repapering as a covered credit transaction even though we call it a renewal?

Answer: Regardless of what term an institution uses (repapering, renewal, etc.), a “refinancing” for purposes of this rule occurs when an existing obligation is satisfied and replaced by a new obligation undertaken by the same borrower. (See Comment 2 to § 1002.103(b)) Your description of “repapering” appears to meet the regulatory definition of a “refinance.” The basis for whether or not a “refinance” has occurred is based upon whether or not the original contract is extinguished and replaced with a new legal contract with the borrower. Assigning a new loan number or reusing the existing loan number is an operational function and has no bearing on the determination of whether or not a new contract is executed and replaces the existing contract.

Question: Could an overdraft protection account be a covered credit transaction?

Answer: Providing occasional overdraft services as part of a deposit account offering is not a covered credit transaction under the rule. However, if the business applicant applies for a line of credit to cover overdrafts or a term loan to cover an overdrawn account, that would constitute a covered application and would be reportable. (See preamble discussion on page 209 of final rule.) In fact, one of the Credit Purpose options for covered applications is “overdraft”.

Question: It was mentioned that a renewal or extension is not a covered credit transaction even if it involves new money. We have seen a few webinars that state new money makes the renewal or extension a covered credit application. Can you clarify?

Answer: The definition of “covered credit transaction” and “covered credit application” are different under the rule.

For purposes of determining if a financial institution is a “covered financial institution”, you must count the number of “covered credit transactions” originated. Comment #5 in the OSC to § 1002.105(b) specifically excludes renewal requests as well as other line increases and other request for additional credit amounts:

Reevaluation, extension, or renewal requests, as well as credit line increases and other requests for additional credit amounts. While requests for additional credit amounts on an existing account can constitute a “covered application” pursuant to § 1002.103(b)(1), such requests are not counted as originations for the purpose of determining whether a financial institution is a covered financial institution pursuant to § 1002.105(b). In addition, transactions that extend, renew, or otherwise amend a transaction are not counted as originations. For example, if a financial institution originates 50 term loans and 30 lines of credit for small businesses in each of the preceding two calendar years, along with 25 line increases for small businesses in each of those years, the financial institution is not a covered financial institution because it has not originated at least 100 covered credit transactions in each of the two preceding calendar years.

Once the financial institution has determined it is subject to the rule (meaning, it is “a covered financial institution”), it must collect and report data related to “covered applications”. Here the OSC to § 1002.103(b) requires the reporting of requests for additional credit associated with refinancings, renewals, and extensions:

103(a) Covered application

Refinancings and evaluation, extension, or renewal requests that request additional credit amounts. As discussed in comments 103(b)-2 and -3, assuming other requirements of a covered application are met, an applicant’s request to refinance and an applicant’s request for additional credit amounts on an existing account both constitute covered applications.

103(b) Circumstances that are not covered applications.

Reevaluation, extension, or renewal requests that do not request additional credit amounts. An applicant’s request to change one or more terms of an existing account does not constitute a covered application, unless the applicant is requesting additional credit amounts on the account. For example, an applicant’s request to extend the duration on a line of credit or to remove a guarantor would not be a covered application. However, assuming other requirements of a covered application are met, an applicant’s request to refinance would be reportable. A refinancing occurs when an existing obligation is satisfied and replaced by a new obligation undertaken by the same borrower.

Reevaluation, extension, or renewal requests that request additional credit amounts. Assuming other requirements of a covered application are met, an applicant’s request for additional credit amounts on an existing account constitutes a covered application. For example, an applicant’s request for a line increase on an existing line of credit, made in accordance with a financial institution’s procedures for the type of credit requested, would be a covered application. As discussed in comment 107(a)(7)-4, when reporting a covered application that seeks additional credit amounts on an existing account, the financial institution need only report the additional credit amount sought, and not the entire credit amount. For example, if an applicant currently has a line of credit account for $100,000, and seeks to increase the line to $150,000, the financial institution reports the amount applied for as $50,000.

Question: Would loans for the purchase or refinance of agricultural real estate be covered by 1071?

Answer: Yes, a loan made to a small business to purchase or refinance agricultural real estate would be reportable. It is considered “business purpose” and is not eligible for the exemption to small business data lending reporting for HMDA reportable loans because Ag purpose loans are also not HMDA reportable.

Question: Consumer designated credit is specifically excluded as a covered credit transaction in the 1071 rule. Can you provide an example what would be considered “consumer designated credit”?

Answer: A transaction qualifies as consumer-designated credit if the financial institution offers or extends the credit product primarily for a personal, family or household purpose. For example, if a financial institution issues a personal credit card to a consumer or closes a home equity line of credit for a consumer and that consumer uses the personal line for both business and personal use, the line is not reportable if the financial institution intended the use to be personal, family or household use.

Question: If we have a guidance line of credit for $500,000 for livestock (pigs) and the customer obtains several loans for each group of pigs but they cumulatively are below the $500,000, would each loan count as a covered credit transaction and covered application?

Answer: A “guidance line” is not a defined term in Regulation B, but assuming you mean the financial institution has approved a max credit limit for the applicant in anticipation of their upcoming borrowing needs, there are two comments in the OSC to § 1002.103(a) that address this scenario:

Initial request for a single covered credit transaction that would result in the origination of multiple covered credit transactions. Assuming the requirements of a covered application are met, if an applicant initially makes a request for one covered credit transaction, but over the course of the application process requests multiple covered credit transactions, each covered credit transaction must be reported as a separate covered application. See § 1002.107(d) for the requirements for reusing data so that a financial institution need only ask once for certain data required under § 1002.107(a). 823

Requests for multiple lines of credit at one time. Assuming the requirements of a covered application are met, if an applicant requests multiple lines of credit on a single credit account, it is reported as one or more covered applications based on the procedures used by the financial institution for the type of credit account. For example, if a financial institution treats a request for multiple lines of credit at one time as sub-components of a single account, the financial institution reports the request as a single covered application. If, on the other hand, the financial institution treats each line of credit as a separate account, then the financial institution reports each request for a line of credit as a separate covered application, as set forth in comment 103(a)-5

The OSC focuses on the applicant’s request, rather than the financial institution’s approval of a “guidance line” and also refers to the procedures used by the institution. So for example, if your institution approves a $500,000 credit line prior to an actual request by the applicant (in anticipation of their annual requests), each request made by the applicant would be considered a covered application. Conversely, if the applicant anticipated their borrowing needs to be $500,000 for the upcoming year and requested that amount initially, it could be reported as a single covered application, whether financed as advances on a line of credit or individual loans. Here again, bank procedures will be critical in handling these requests.

Covered Applications

Question: If a business concern applies for a loan and we report that application, and they come back within the same year and apply for another loan, are we required to report again?

Answer: This really depends on the financial institution’s procedures as well as the fact pattern as to the credit request by the applicant. Each application for credit is a reportable event, so if these were individual credit requests, each would be reportable. Thus, it is quite possible an institution would have multiple reportable applications over the course of a year from the same borrower.

The rule does however indicate, if the applicant requests multiple lines of credit on a single credit account, they can be reported as either one or multiple covered applications, based on the procedures used by the institution for the type of credit account. For example, if an institution treats a request for multiple lines of credit at one time as sub-components of a single account, the institution reports the request as a single covered application. To illustrate, assume a farmer requested a master line of $750,000 for farm operating expenses to purchase seed, fertilizer, fuel, etc. and the institution approved this credit request. This request could be treated as one application for credit whether it was funded in one loan or LOC or multiple loans/LOCs. In contrast, the same institution could elect to treat each extension of credit as a separate account, reporting each request as a separate covered application. The key is to develop procedures for how the institution will document and report these requests. See comments 5, 6, and 7 to § 1002.103(a).

Data Points

Action Taken Date
Amount Approved or Originated
Business Ownership Status & Principal Owner Demographics Data Points
Credit Purpose
Gross Annual Revenue
Interest Rate
NAICS Code
Total Origination Charges

Action Taken Date

Question: During the Action Taken discussion, rescission was mentioned. Wouldn’t a rescindable loan be HMDA-reportable and thus not reportable on our small business LAR?

Yes, it’s highly likely a loan subject to rescission would be HMDA reportable, and thus exempt from the Small Business Lending Data Collection rule, since rescission only applies to consumer-purpose loans secured by the consumer’s principal dwelling and nearly all consumer-purpose, dwelling secured loans are HMDA reportable – subject to a few exceptions. We included this statement in the slide because the Official Staff Commentary specifically addresses rescindable transactions.

Amount Approved or Originated

Question: We have an existing operating line of credit for $100,000 and the borrower wants to add $20,000. Do we only report the additional $20,000 on our small business LAR or the full $120,000?

Answer: It depends on how the bank processes the transaction. If you modify the existing loan, you only report the additional credit amount approved or originated ($20,000), not any previous amounts extended. However, if you refinance the existing line of credit with a new line of credit for $120,000, you report the amount of credit approved or originated under the terms of the new debt obligation ($120,000). See comment #4 and #6 to 12 CFR 1002.107(a)(8).

Business Ownership Status & Principal Owner Demographics Data Points

Question: If one of the free-form text fields contains a misspelled ethnicity or race, do we correct it?

Answer: If it is clear what the principal owner intended (for example, he/she entered “Pakistanie” when they meant to enter “Pakistani”), the financial institution should go ahead and correct it. However, if it is not clear what ethnic or racial subcategory the principal owner is attempting to identify with based on his/her response in the free-form text field, the financial institution should enter it on the Loan Application Register as is.

Question: Regarding ownership status and demographic information, should we have a “I don’t care what you enter” mentality? Meaning, if a principal owner claims to be an African American female, however, you can clearly see that he is a White male, we report what the applicant provided, correct?

Answer: That is correct. The rule provides that the financial institution must report the applicant’s substantive responses to the demographic information questions and need not verify that information.

Question: Once the business ownership status and demographic information is obtained, for subsequent loans within the 36-month timeframe, can the loan officer just verify there are no changes to this information?

Answer: Business ownership status and demographic information are both data points that may be reused in connection with a subsequent application subject to certain conditions:

No more than 36-months has elapsed from the date of final action on the previous application and the date on the current covered application, and
Updated information has not been provided by the applicant and the institution has no reason to believe that the previously provided information is no longer accurate.

You are correct that the loan officer should check to ensure that the questions related to business ownership status and demographic information were provided in connection with the previous application and within the 36-month timeframe. If the loan officer can verify that both of these conditions were met, and does not have knowledge of any changes, the information can be reused. However, if both conditions were not met, the loan officer would need to request the information in connection with the current application.

Question: What do we do if the applicant provides some, but not all, business ownership status and principal owners’ demographic information? How do we report the data points they decline to answer?

Answer: Comment #1 in the OSC to § 1002.107(a)(18) provides that a financial institution must permit an applicant to refuse to answer the financial institution’s inquiry regarding business status and must inform the applicant that the applicant is not required to provide the information. The sample data collection form from the CFPB contains the following language: “While you are not required to provide this information, we encourage you to do so.”

If the applicant chooses not to provide or fails to provide information regarding its business status, the financial institution will complete its small business loan application register as follows (see Small Business Lending Rule – Data Points Chart, page 30):

Business Ownership Statuses
- Code 966 – The applicant responded that they did not wish to provide this information, or
- Code 988 – Not provided by applicant

Likewise, comment #1 in the OSC to § 1002.107(a)(19) provides that a financial institution must permit an applicant to refuse to answer the financial institution’s inquiry regarding the ethnicity, race, and sex of its principal owner(s). It must also inform the applicant that the applicant is not required to provide this information. The sample data collection form states “As a reminder, applicants are not required to provide this information but are encouraged to do so.”

If the applicant chooses not to provide or fails to provide information regarding the ethnicity, race, and sex of its principal owner(s), the financial institution will complete its small business loan application register as follows (see Small Business Lending Rule – Data Points Chart, pages 31-40):

Ethnicity of Principal Owner(s)
- Code 966 – Applicant responded they did not wish to provide this information, or
- Code 988 – Not provided by applicant
Race of Principal Owner(s)
- Code 966 – Applicant responded they did not wish to provide this information, or
- Code 988 – Not provided by applicant
Sex/Gender of Principal Owner(s)
- Code 966 – Applicant responded they did not wish to provide this information, or
- Code 988 – Not provided by applicant

Question: What if your customer puts down an ethnicity for themselves that you know is not accurate; suspecting they think they’re being “funny”, and they find the questions ridiculous? Do you knowingly report the incorrect one, thus skewing the data?

Answer: Comment #9 to the OSC to § 1002.107(a)(19) provides the following:

No verification of ethnicity, race, and sex of principal owners. A financial institution must report the applicant’s substantive responses as to its principal owners’ ethnicity, race, and sex.

In addition, the financial institution is specifically prohibited from collecting this information via visual observation or surname (See preamble discussion on page 5).

Credit Purpose

Question: Are the credit purpose reporting options as rigidly defined for small business lending data purposes as they are for HMDA? For example, do certain criteria need to be met for the purpose to be considered business start-up, or is that bank defined?

Answer: Section 1002.107(a)(6) of Regulation B includes 14 choices for credit purpose. These include:

Purchase, construction/improvement, or refinance of non-owner-occupied real property
Purchase, construction/improvement, or refinance of owner-occupied real property
Purchase, refinance, or rehabilitation/repair of motor vehicle(s)
Purchase, refinance, or rehabilitation/repair of equipment
Working capital
Business start-up
Business expansion
Business acquisition
Refinance existing debt
Line increase
Overdraft
Other
Not provided by applicant and otherwise undetermined
Not applicable

The commentary to this section establishes a waterfall approach for determining credit purpose. The financial institution may ask the applicant to select from the above list. If the applicant chooses a specific purpose from the list (or one similar to a purpose provided on the list), the financial institution reports the purpose from the list. If the applicant chooses a purpose not included on the list, the financial institution reports “Other” and then reports the stated purpose via a free-form text field. The “Not applicable” selection is generally reserved for those transactions that have an indeterminate number of or numerous potential purposes, such as a credit card.

Gross Annual Revenue

Question: If we choose option #3 to determine our 2022 and 2023 origination numbers (which is based on 4^th quarter 2023 origination of covered credit transactions) to determine our mandatory reporting date, how should we best document gross annual revenue (GAR) for Q4 originations? Just a note in the file?

Answer: The rule indicates the institution can rely on the borrower’s representation of their GAR. So, it makes sense to simply ask the borrower for their GAR. The institution could verbally ask the applicant for this information and create a record in the loan file, or the institution could also ask the applicant to provide their GAR on a written form, such as an application or credit request summary. Keep in mind, not only do you need to make a determination of the applicant’s GAR, but loan purpose as well to ensure the transaction would be a covered credit transaction rather than a transaction expressly excluded in the rule (such as HMDA reportable transaction).

Finally, the institution needs to develop a method to track or count the number of covered originations in the 4^th quarter. This may be done manually by keeping a list or the institution may want to develop another solution, such as assigning a code to the loan that can be added to the institution’s core processing system so covered originations can be more easily queried through a core reporting function.

Question: If tax returns are collected and not specifically stated they are obtained for the purpose of verifying GAR – would you still use the GAR from the tax return or amount provided by the borrower?

Answer: The institution is able to rely on the GAR amount provided by the applicant UNLESS the institution verifies the GAR. There is a brief discussion in the preamble to the final rule (bottom of page 378) that addresses what it means to “verify” gross annual revenue. The discussion indicates the CFPB interprets the word “verification” to mean the intentional act of determining the accuracy of information provided, in this case for the purpose of processing and underwriting the credit application, and potentially changing that information to reflect the determination.

So, the fact that you collect tax returns alone would not necessarily constitute “verifying GAR” nor does your stated purpose for collecting the returns. Rather, it is what the institution does with the tax return information that may constitute verifying GAR. If the institution takes the tax return information and recalculates the GAR for the purpose of underwriting the loan and making a credit decision, it should use the verified GAR amount to determine if the business applicant is a “small business.”

Question: If we require copies of tax returns annually, would this mean that we have “verified” the small business’ gross annual revenue?

Answer: Gross annual revenue is important for two reasons. First, the amount of gross annual revenue earned by the business during its preceding fiscal year will determine whether it qualifies as a small business under the rule. Second, one of the data points required to be collected and reported in connection with a covered application is the gross annual revenue of the small business. A financial institution is permitted to rely on an applicant’s representations regarding gross annual revenue; however, if it later verifies this information, it must use the verified amount.

The regulatory text and commentary do not specifically discuss what it means to “verify” gross annual revenue amounts. There is however, a brief discussion in the preamble to the final rule (bottom of page 378) that addresses what it means to “verify” gross annual revenue. The discussion indicates the Bureau interprets the word “verification” to mean the intentional act of determining the accuracy of information provided, in this case for the purpose of processing and underwriting the credit application, and potentially changing that information to reflect the determination. The Bureau does not believe that post-origination independent testing and validation of the small business file constitutes “verification.” So, the fact that you collect tax returns alone would not necessarily constitute “verifying income”; rather, it is what the institution does with that information that may constitute verifying income.

Interest Rate

Question: What should we report as the Initial Rate Period if the product’s interest rate can adjust daily?

Answer: If the interest rate can change daily, starting at origination, it does NOT have an Initial Rate Period. The Filing Instructions Guide indicates if the Interest Rate Type is Code 1 – the transaction has an adjustable interest rate and does not have an initial interest period – the Initial Rate Period LAR field should be left blank (because the loan has no Initial Interest Rate Period).

Question: Would a 5-year balloon agricultural mortgage be considered an adjustable-rate transaction? These loans are typically extended when the balloon payment comes due.

Answer: A balloon loan would not be considered an adjustable-rate mortgage. A balloon loan generally has a fixed interest rate for a specified period of time, followed by a balloon payment. Additional action must be taken by the applicant in connection with the balloon payment, e.g., the balloon must be paid in full, modified or refinanced. Only if the balloon loan had an interest rate that adjusted periodically based on an index value and margin would it be considered an adjustable-rate loan.

Question: What should we report as the Margin Value if the loan is an adjustable rate tied to an index but has no margin; in other words, the loan rate is in the Index value only?

Answer: The Filing Instructions Guide tells us the Margin Value must be reported (the LAR field cannot be left blank) if the Interest Rate Type is the transaction has an adjustable interest rate. It further states when present, a numeric value must be reported and should generally be greater than 0.1. If your product features an adjustable rate and future rates are based on the index value with no margin amount added, report 0 as the Margin Value. As the FIG notes, generally the margin value is greater than 0.1, however your product represents one of those rare instances in which the Margin Value is 0.

NAICS Code

Question: Is the bank supposed to determine the applicable small business NAICS code or do we rely on tax returns for the code? What if the tax return lists 99999 as the NAICS code?

Answer: Section 1002.107(a)(15) of Regulation B requires a financial institution to maintain procedures reasonably designed to collect applicant-provided data, which includes the 3-digit NAICS code in effect as of January 1^st of the calendar year covering the small business loan application register it is reporting.

The rule contains a safe harbor. If the financial institution maintains procedures reasonably adapted to correctly identify the appropriate 3-digit NAICS code, it does not violate the rule by relying on representations from the applicant or utilizing an appropriate third-party source.

However, if the financial institution is unable to collect or otherwise determine a NAICS code for the applicant, it may report code 988 – not provided by applicant and otherwise undetermined.

Total Origination Charges

Question: During the Origination Charges discussion, a lender credit was mentioned. Aren’t Lender Credits only applicable to HMDA reportable loans?

Answer: Lender credits are not limited to HMDA reportable loans. The bank may provide a credit to a small business applicant to help offset some, or all of the origination charges. When the amount of the lender credit provided is greater than the total amount of origination charges the applicant would have paid, the bank should report the total origination charges as a negative amount. See comment #6 to 12 CFR 1002.107(a)(12)(ii).

Question: If the bank pays the title fees and/or recording fees on the borrower’s behalf, are they included in the origination charges?

Answer: Origination charges include all charges payable directly or indirectly by the applicant and imposed directly or indirectly by the financial institution as an incident to or a condition of the extension of credit. While title fees and/or recording fees are imposed indirectly by the financial institution incident to the extension of credit, because those charges are not payable directly or indirectly by the borrower (they are paid by the bank), they are not included in the total origination charges.

Question: If the bank does not pass on the credit report fee to the borrower (e.g., absorbs the cost) or elects to waive its normal processing fee, should those amounts be included in the Origination Charges total?

Answer: The credit report fee follows the same fact pattern as outlined in the previous Q&A. The credit report fee is imposed indirectly by the financial institution but not payable by the applicant (it is absorbed by the bank). As a result, it is NOT included in the total origination charges. The processing fee is also not included in the total origination charges. Not only is this charge not payable by the applicant, but it is also not being imposed (directly or indirectly) by the financial institution for this particular transaction. It does not meet the definition of origination charge found in 12 CFR 1002.107(a)(12)(ii).

Question: If we don’t charge the applicant for the appraisal; however, we do require the applicant to pay the associated title costs, should we net those two amounts together and if the result is a negative number, show a “lender credit”?

Answer: A net lender credit must be shown when any lender credit provided to the borrower is greater than the total origination charges the applicant would have paid. For example, the institution provides a lender credit of $1,200 which is equal to the amount of the appraisal. However, the title costs ($500) are the responsibility of the borrower. In this case, a net lender credit would not be shown. That is because the lender credit ($1,200) does not exceed the total amount of origination charges payable by the applicant ($1,700). In the situation that you describe, you would show the amount of the title costs as the origination charge, as that cost is being imposed on and paid by the borrower. However, the institution is absorbing the cost of the appraisal; therefore, it is not included in the total origination charges.

Legal Entity Identifier

Question: We are new to data collection and reporting and will be covered by Section 1071 Small Business Data Collection Rule. We understand we need to obtain a Legal Entity Identifier (LEI) for our bank, but by what date do we need to secure a LEI — the date we begin collection or the date we submit our first Loan Application Register?

Answer: The rule does not specifically mandate by what date a bank must obtain a LEI. However, keep in mind the bank’s LEI is needed to create a unique loan identifier for each reported application. Thus, from a procedural aspect, the bank is likely to want its LEI to be determined prior to its mandatory compliance date so it can be used when creating the unique identifier for each reportable application. For example, if a bank is a tier 3 bank with a collection start date of Oct. 18, 2026, it would likely want to obtain its LEI before then. The process of obtaining an LEI involves an initial application to your selected LEI registration agent and then annual renewal and payment of an annual fee.

Question: Our bank is not subject to HMDA reporting, but we will be subject to the Small Business Lending Data Collection rule. The rule states we need a Legal Entity Identifier (LEI), but I am not sure what that is or how we obtain a LEI.

Answer: The Official Staff Commentary to §1002.109(b)(6) explains an LEI is a utility endorsed by the LEI Regulatory Oversight Committee, or a utility endorsed or otherwise governed by the Global LEI Foundation (GLEIF) used to identify a financial institution. A financial institution that is subject to the Small Business Data Collection rule and does not currently possess a LEI number must obtain an LEI number and has an ongoing obligation to maintain that LEI number. The GLEIF website provides a list of LEI issuing organizations. A financial institution may obtain an LEI from any one of the issuing organizations listed on the GLEIF website.

If your institution is subject to HMDA reporting, it should already have a LEI. When this is the case, use the same LEI number for both HMDA and Small Business Lending Data Collection rule purposes.

Data Reporting

Question: Is it possible to report a loan more than once in a calendar year? For example, we originate an operating line of credit in January and in September we increase the operating line via a modification. If so, what do you recommend we use for a unique application identifier for the modification?

Answer: In this scenario, multiple entries for the same loan would be included on your small business loan application register for that year. The rule requires financial institutions to report a covered application for the year in which final action was taken.

Comment #3 to the OSC to § 1002.103(b) states that an applicant’s request for additional credit amounts constitutes a separate covered application. The fact that the request for additional credit constitutes a separate covered application is supported by comment #4 to the OSC to § 1002.107(a)(7). This comment reads:

When reporting a covered application that seeks additional credit amounts on an existing account, the financial institution reports only the additional credit amount sought, and not any previous amounts extended.

Section 1002.107(a)(1) of Regulation B states that the unique identifier must be assigned to a specific covered application and be used to identify and retrieve the specific file or files corresponding to the application for or extension of credit.

As a result, the original operating line of credit opened in January would be reported for the initial dollar amount with a unique identifier assigned to that covered application. You would then have a second entry on your small business loan application register for the September modification. This entry would identify only the additional amount of credit requested and would have a unique identifier assigned to that separate covered application. There is no requirement the unique identifier required by the small business data collection rule be the same as the loan number assigned by the financial institution.

Question: Did the CFPB already publish their data point guide and instructions as to how your loan application register needs to be formatted?

Answer: They have. The CFPB’s Small Business Lending Data Points Chart is available here. In addition, the Filing Instructions Guide is available here.

Firewall

Question: If your institution qualifies for the limited firewall exception, do you still have to keep business ownership status and demographic information separate from the rest of the loan file?

Answer: Yes, you do. Even under the limited firewall exception, only those employees with a need to see the business ownership status and demographic information (e.g., the loan officer taking the application) are permitted access. Other employees who are involved in making any determination concerning the application (e.g., other members of the loan committee or underwriters) are still not permitted access to this information. Therefore, this information must be retained separately from the remainder of the loan file.

Question: I don’t understand the firewall provision. The lender underwriting the credit is going to see the application, so are you saying that the collection of business ownership status and demographic information must be separate from the actual application and application intake must be done by a person other than the loan officer?

Answer: Remember that the limited firewall exception allows you to make certain adjustments based on your institution’s procedures. For example, a loan officer who collects business ownership status and demographic information at the time of application may have access to the information. However, other financial institution employees who participate in making any determination in connection with the credit decision on the application are still not permitted access to the information. Therefore, while application intake need not be done by a person other than the loan officer, business ownership status and demographic information must be completed on a form separate from the application for purposes of the limited firewall exception and should NOT be accessible by others involved in making the credit decision.

Question: If we image all loans, does the business ownership status and demographic information have to be in a file that cannot be accessed by loan committee and/or a loan officer at all? Does this information have to be “locked down” with only a few people having access?

Answer: Yes. Business ownership status and demographic information must be kept separate from the loan file and cannot be accessible to any person involved in making any determination concerning the covered application. While certain individuals involved in the lending process (e.g., loan officer) may have access to this information under the limited firewall exception, others within the institution that are involved in making any determination concerning the covered application cannot. Therefore, the institution will have to maintain this information separately (whether in paper or electronic form) from the remainder of the loan file.

Mandatory Compliance Dates

Question: I have a question related to determining the bank’s mandatory compliance date – or the date it must begin data collection. We do collect gross annual revenue amounts from applicants but I am not sure how we would go back to 2022 and 2023 originations and determine which were made to small businesses and which were not, other than going through each closed loan file. Does the regulation require we do this?

Answer: Thankfully no. The rules says the bank may use the actual number of originations made to small businesses in 2022 and 2023 if it collected gross annual revenue information, provided that information is “readily available.” The official staff commentary to this section then further explains what is deemed readily accessible. It says a financial institution does NOT have readily accessible information if in order to retrieve the information, for example, it must review paper loan files, recall such information from either archived paper records or scanned records in digital archives, or obtain such information from third parties that initially obtained this information but did not transmit such information to the financial institution. So even though you collected gross annual revenue, since it is not readily accessible, you can use one of the other means to determine your 2022 and 2023 covered origination numbers.

Question: Based on our 2022 and 2023 originations of covered credit transactions, we have established that our mandatory compliance date is January 1, 2026. During a recent IBA webinar, it was mentioned that we still need to track our 2024 and 2025 originations to ensure January 1, 2026 is our appropriate start date. I don’t understand why. Please explain.

Answer: The number of covered credit transactions originated in 2022 and 2023 will determine your mandatory compliance date, or in other words, your earliest possible date to start data collection. If you originated between 100 and 499 covered credit transactions in both of those years, your earliest possible data collection start date would be January 1, 2026. However, remember that financial institutions are only required to collect and report small business lending data if they originated at least 100 covered credit transactions in each of the two preceding calendar years. Therefore, in your scenario, you would also need to determine the number of covered credit transactions you originated in 2024 and 2025 – the two preceding calendar years to your January 1, 2026 start date. If you fell below the 100 threshold in either of these years, that would delay your mandatory compliance date beyond January 1, 2026 – until such time as you had 100 or more covered originations in two consecutive years.

Small Business Definition

Question: Must a small business concern that is NOT an LLC, corporation, or other formally organized entity, have a Schedule C, E, or F on their income tax return to be considered a small business? For example, would a business purpose loan to a person that only has W2 income trigger reporting?

Answer: The rule’s definition of a “small business” makes no mention of how the business reports income to the IRS. Rather, the rule defines a small business as a “small business concern with gross annual revenues of $5 million or less for its preceding fiscal year” and references the definition of business concern in 13 CFR 121.105. This section of the Small Business Administration rules indicates a business concern is organized for profit, with a place of business located in the United States, and which operates primarily within the United States or which makes a significant contribution to the U.S. economy. It goes on to state business concerns may be in the form of an individual proprietorship, partnership, limited liability company, corporation, joint venture, association, trust or cooperative. So while a small business may be legally organized, it may also be an individual proprietor or an association of persons working together.

Question: I’d say 90% of our farmers don’t have a legal entity established; however, they do have a Schedule F. Would these business concerns be considered small businesses under the rule?

Answer: Yes. The definition of small business and business concern in the final rule does not include a requirement that the business be legally organized under state or federal law. In fact, the SBA definition of business concern specifically includes sole proprietorships.

Tools

2025 Small Business Lending Lar Data Point Guide

1071 Data Point Gap Analysis Worksheet

Electronic Small Business Loan Application Register

Sample Small Business Lending Data Collection Policy Statement – Covered Financial Institution

Sample Small Business Lending Data Collection Policy Statement – Not a Financial Institution

Small Business Credit Request (Paper)

Small Business Lending Sample Collection Form – Ownership Status and Principal Owner Demographics

Small Business Lending Ownership Status and Demographic Information LAR Input Worksheet

Small Business Lending Data Point LAR Input Worksheet

Small Business Lending Covered Application Guide

Small Business Lending Data Collection Statutorily Required Data Fields