Getting Ready for Small Business Data Collection: Commercial Application Process Considerations

by Amanda Pickering, Senior Consultant, Capco

If your institution hasn’t already, now is the time to adopt a physical application form (paper and/or electronic) and process it now if there currently isn’t one for commercial lending departments.  This is critical given the number of data points that must be collected under the Small Business Data Collection Rule (1071).  Implementing a formal application process now will bring your institution a big step closer to being ready for 1071 and will give your lenders time to adapt.

Developing Procedures for Non-HMDA Commercial Loan Applications

As part of this new process, your institution should implement commercial loan department-wide procedures to identify and retain non-HMDA commercial loan applications that are denied, withdrawn, approved not accepted, and incomplete. This process may already exist for HMDA-reportable commercial loan applications, but a similar application “categorization” must also happen under 1071.

Once your formal commercial application process is in place, covered institutions may begin collecting the principal owner ethnicity, race, and sex and the minority, women, or LGBTQ+-owned status of applicants up to 12 months prior to their effective date for complying with the Small Business Data Collection Rule based on their number of covered loans.  This will help ease the implementation of the final “piece” in the commercial application process prior to the Institution’s actual data collection effective date.  The data collection forms are found in Appendix E to Regulation B. The two forms in Appendix E may be combined on one form together but may not be combined with the application form(s) themselves.

What Should Be Included in Commercial Applications?

Prior to the institution’s effective date for 1071 compliance, consider adding these additional items to any existing commercial application form (both paper and online).  This information may be collected for all commercial loans, no matter the gross annual revenue:

• Amount requested
• Amount approved or originated (to complete at end of the process)
• Product (can use loan types from LAR as checkboxes)
• Purpose (can use purpose types from LAR as checkboxes)
• Application method (provide check boxes for Phone, Mail, In Person, and Online)
• Date of application
• Address of business
• Address where funds will be used
• Guarantor information
• Time in business
• Gross Annual Revenue from most recent fiscal year-end using this model language, if desired: What was the gross annual revenue of the business applying for credit in its last full fiscal year? Gross annual revenue is the amount of money the business earned before subtracting taxes and other expenses. You may provide gross annual revenue calculated using any reasonable method.
• Number of workers
• 3-digit NAICS code

Having Gross Annual Revenue on the application form will assist lenders in determining whether to collect the principal owner demographic data and the minority, women, or LGBTQ+ status of the business.  Only those businesses with gross annual revenue of $5MM or less will be reported and require this additional data collection.

Other Considerations

• Firewall Exception 

If the institution wishes to avail itself of the firewall exception, it must provide special notice about employee access on the business status form (see Appendix E, second paragraph on the sample form).

• Businesses with gross annual revenue over $5MM 

Keep in mind that the two supplemental forms for collecting principal owner demographics and business status are NOT to be completed for businesses with gross annual revenues exceeding $5MM.  There is an exception if the institution believed the revenue was below $5MM but later determined that it was greater during underwriting.

How Capco Can Help

Not sure where to start? Capco has many offerings that can assist the financial institution with its compliance program. Regulatory Advisory Services can assist the financial institution in understanding the requirements for compliance. Capco Academy is ready to assist your institution to meet these challenges with our custom training solutions tailored to the specialized needs of your institution at every level of responsibility.