Bank Regulatory Agencies Issue Joint Notice of Proposed Rulemaking for CRA Regulations
WASHINGTON, D.C.–May 5, 2022–The three major federal bank regulatory agencies today issued a joint notice of proposed rulemaking to strengthen and modernize Community Reinvestment Act (CRA) regulations. The Office of the Comptroller of the Currency (OCC), Board of Governors of the Federal Reserve System (Fed) and Federal Deposit Insurance Corporation (FDIC) jointly issued the proposal, which would be the first significant interagency revision to the CRA since 1995. The proposal would adopt a metrics-based approach to CRA evaluation of retail lending and community development financing that includes public benchmarks. The rule would also clarify eligible CRA activities that are focused on low- and moderate-income, rural and underserved communities, including affordable housing. The OCC issued a proposed update to CRA regulations in June 2020, but rescinded that rule in December 2021 with a view to issuing a joint rule.
Small business owners and commercial property investors looking to finance their properties have many things to consider, especially if they are unable to get a bank loan. Covid 19 and the ensuing economy has created an overabundance of “risk aversion” for commercial banks. It’s important for borrowers to understand what their options are, how to leverage those options, and how to protect themselves when seeking financing.
Hard money, everything else being equal, should not be your first choice after a bank turndown – low loan to value, high costs and onerous terms. Moreover, if you are seeking more reasonable terms for your borrowed funds, you’ll need to look at: credit, collateral and capacity to repay.
Whether you’re dealing with past credit issues, an inability to verify your income to a bank’s satisfaction, or simply need a commercial mortgage faster than a bank can provide, non-bank commercial lenders are a great resource for non-bankable borrowers. These lenders understand alternate documentation, how to support the decisions being made that make sense but are not necessarily confined by federal banking documentation requirements. An example of this is accepting bank statements showing revenue as opposed to tax returns.
This is also an opportunity to “fine-tune” your business, making sure you have your sales and marketing up to speed, that you not only have continuity of income but diversity as well. Any good consultant will also review your business in view of industry standards and current trends to assure that you have not missed anything.
It’s difficult to handle the current economic environment unless you know what you’re dealing with. The truth is that no one knows the depth, breadth or length of the current economic slump due to COVID-19. It’s been like a one, two punch. The default rates is out of control which, in turn, has caused banks to pull in there horns in lending.
GPA Capital, through its years of experience (this is not our first recession) is ready to help. Cash flow lending is challenging, particularly since one cannot produce stabilized revenue. However, we can look at our opportunistic fund for one. We can also look at changing asset class for collateral, which utilizes your self-liquidating assets such as Accounts Receivable, MVA’s, O&G Reserves or Other Pre-Sales and Invoice Financing. Projections are fine if supported appropriately.
Let’s talk further! Apply here to get started: https://gp-assoc.com/#/
“I am more concerned with the return of my money than the return on my money,” interestingly was quoted by three powerhouse people of the past (Mark Twain, Will Rogers and John Maynard Keynes – the father of modern day economics). This is so powerful, yet simple, that I wanted to bring it up again as it is a more applicable statement today than ever before.
As I’ve worked and consulted with commercial banks in past recessions, the knee-jerk reaction is usually to litigate first and worry about capital recapture later. This one-way street leads the borrower to seek the protection of the US Bankruptcy Court. As a consequence, massive writeoffs are taken and all parties lose.
Alternatively, I’ve proven time and time again that the best path to a workout is to work with all parties, assessing concepts, business plans, capital stack, supply-demand for products and efficiency of workflow. The “project correction” can be (1) charged off, (2) the new business plan executed so that the endeavor is now profitable, (3) the charged off amount can now be amortized over the new project earnings, and finally, (4) recorded as capital gains, thus monetizing the tax benefit along with the capital recapture.
Not possible? Case Study: One of our bank clients was upside down by an inordinant amount. Why not buy the land next door with seller-held paper, double the size of the project and amortize the overage – it worked (Ocala, Florida). Whether Real Estate, Industrial or Energy, GPA Capital’s Elastic Amortization Method.
Feel free to email me your scenario…firstname.lastname@example.org
Charles Pope, Certified Commercial Lender
In the new economy, post covid, there will be changes to this market. There will be a short term increase in money spent on tenant improvements (TI), which will be amortized through long term interior finish loans. This will result in an overall increase in NOI. Of course, their will be an accompanying correction to cap rates. How will this work?
For two reasons, there will most certainly be vacancies: 1) Small to medium businesses (SMB’s) will reel in expenses as product demand decreases. As employees are more comfortable working at home, this will become standard for many, allowing many of these small businesses to survive.
2) Medium to large Business’s that need the centralized workforce will have to lease more square footage.
The tenants necessarily will have to abide by the new rules on social distancing and safe work places. Now that there are fewer tenants, but with larger spaces, management fees will be lower on a pro rata basis which, in turn, will increase NOI. Of course, the larger tenants will negotiate lower square foot rates. The outcome of this will simply be, as it always is, supply and demand.
For those of our followers who find themselves in the office space re-do mode, we are excited to offer these loans at a 10 years, or the lease term, whichever is less. Whereas many banks are unable to perform on these requests due to the current default rate and deposit runoff, GPA Capital is here to help – as we always are. Click here for our initial [Application Request].
Our recent anecdotal evidence shows that there is a logjam with most banks due to the overwhelming amount of disaster relief applications.
The Washington Post spelled it out in their interview with Small Business Administration director who blasts banks over failure to quickly distribute loans. Nevada district director Joseph Amato criticized big banks for failing to quickly distribute loans to small businesses during a web presentation posted on April 6 and later shared with The Post. GPA Capital works hard to vet our bank alliances – we know the performing ones.
Some bank lenders, as well as private equity funds, have put a hiatus on lending as they are analyzing investments in view of the proposed recovery. Will the recovery be “V” or “__”? Whereas this may be perceived as bad news, the good news is that GPA Capital has been reaching out through its network to bring lenders back to the table for well structured, self liquidating loans. Meaning, a strong exit strategy using strong compensating factors. Call us to discuss 877-247-2776. In the meantime, here are 8 things to consider to improve your funding chances.
Recently we’ve heard market watchers tell us that the oil & gas future is uncertain. We challenge that attitude as evidenced by our success in financing our oil & gas clients. As most elements in business and finance, in general – it all has to do with supply and demand. The demand for oil is not going away. Travel may be weak at this time, but this is overtaken by the strong demand for the other products made from a barrel of oil – such as PPE, to name one in current demand. To the point that a picture is worth 1,000 words, please see below:
If you are an independent oil & gas producer, we can help you. Please call us at 877-247-2776.
Not for Profit Organizations have no shareholders, show no excess cash to be used for debt service, therefore can’t show a debt service coverage ratio and report to the IRS on form 990 instead of 1120.
Most of these characteristics are not too well understood by traditional lenders, thus, GPA Capital is frequently called upon to advise. Of course, we make full use of a select numbers of Commercial Banking Alliances, as well as our Private Equity Partners.
Not having shareholders takes away the crutch that most lenders have of relying on a guarantor; there are no guarantors. This means that the underwriter (in this case, GPA Capital) must rely on the Non-Profit itself for the payback.
Having zero income does not mean “no capacity of payback”. This simply means the underwriter has to have a working knowledge of the CAFR, a Comprehensive Annual Financial Report; a set of U.S. government financial statements. By way of definition, this opens up scrutiny of Statements of Net Position and, important for debt service, Statement of Activities. Are the funds of the Not for Profit Major Funds, and, if not, where do the categories stack up? Are the assets designated?
For these reasons, if you are at Non-Profit AND, you do not have access to a tax base or other municipal funds, bond funds or special charity forums, you will be well served to give is a call. 877-247-2776.
As Commercial Loan Advisors we can assertively tell you that by understanding the fundamentals of how your debt source analyzes potential loans, you become a much more formidable borrower. This will enable you to utilize your leverage to your best advantage.
We put together this informative eBook that is part of a 5 part series to bring you current with the state of the borrowing industry and how you might leverage your resources to improve your practice’s financial situation. The Five C’s Whitepaper, Educational Series 1 of 5. Enjoy!