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North Bay Business Journal

Monday, December 5, 2011, 6:00 am

Lenders expect 504 lending to rise with recovery

Current levels reflect that some seek expansion during recession.

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    NORTH BAY — Both the number of loans and the total value of loans facilitated through the U.S. Small Business Administration’s 504 program decreased across the North Bay in fiscal year 2011, despite increases on the national level.

    The total value of the government-guaranteed portion of loans that certified development companies operating in Sonoma, Marin and Napa Counties facilitated was $28.8 million for the fiscal year. In fiscal year 2010, that value was $33.38 million.

    The number of loans approved also decreased, totaling 37 loans across the three counties versus 50 in the previous fiscal year.

    The loans, which involve up to 50 percent financing from a lender and 40 percent at a fixed rate through the SBA, offer long-term financing covering up to 90 percent of “major fixed assets” like buildings and equipment. Nationally, the number of loans rose to 7,983 for the fiscal year, up from 7,833 in 2010. Including the private sector financing, they facilitated $10.34 billion in lending, up from $9.97 billion.

    Despite the lower values for the year in the North Bay, the authorized lenders who facilitated loans in the region said that the remaining loans showed that some businesses are still in a position to expand amid the pressure brought on by the recession. In the first part of the new SBA fiscal year, which began Oct. 1, lenders said that they’ve already seen a greater number of inquiries than compared to the same time in 2011.

    “The economy has definitely had an impact,” said Bob Thompson, loan officer for the North Bay and senior vice president at Bay Area Development Company. Yet examples exist for those seeing opportunity for expansion, including that “people are realizing that if they have the opportunity to trade out renting a building to owning, they can start creating equity instead of nothing.”

    Five certified development companies, commonly called CDCs, issued debentures for loans in the North Bay in the fiscal year, up from three who facilitated loans in 2010.

    The largest value of lending came from TMC Financing, which provided $11.92 million in 504 debentures in fiscal year 2011, spread over 17 loans. TMC actually increased the amount it lent despite the region’s downward trend, up more than $100,000 from 2010.

    The San Francisco-based firm facilitated fewer 504 loans in the North Bay, however — three less than in fiscal year 2010.

    “There is evidence that the recession didn’t hit everyone equally,” said Barbara Morrison, president and CEO of TMC.

    Ms. Morrison said that her company has seen greater activity from the healthcare and professional services industries looking to finance major assets in the Bay Area. There has been heightened interest from the manufacturing industry in Southern California, where the CDC also concentrates its operation.

    The second-highest level of lending in the North Bay came from Bay Area Development Company. The CDC covered $7.8 million in lending in the 2011 fiscal year over 11 loans. It was approximately $10 million less in lending than in fiscal year 2010, when the company led the region in both value of loans and number of loans – 23.

     Mr. Thompson said that his company’s loans in the region reflected a broad range of industries, and that the dip in lending over the year was due to the two-sided concern of business owners feeling nervous about expansion and the difficulty for many to qualify for loans.

    Other CDCs operating in the region were EDF Resource Capital, Inc., with one $5 million loan in Napa County; Capital Access Group, Inc., with $3.46 million over seven loans; and California Statewide Certified Development Corp., with one $323,000 loan in Marin County.

    Jacklyn Jordan, president and CEO of Capital Access Group, said that she expected more businesses to pursue financing through the 504 program in the 2012 fiscal year. Her company has already approved 28 percent more loans compared to the same time in the previous year.

    “There are a lot of businesses out there that are doing well, and they think that now is the time,” she said.

    Many lenders said that much of the heightened interest expected in the fixed-rate 504 program this fiscal year will stem from enhancements that include a new refinance program. After a final tweak in October, the new program, which expires on Sept. 27 of 2012, will allow businesses to refinance existing debt through an arrangement similar to a 504 loan, along with the cashing out of equity that was already invested to pay for operating and other qualified expenses.

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