Clark County businesses received $37.8 million in Small Business Administration 504 real estate financing in 2011, supporting more than $90 million in commercial real estate projects, The Mortgage Development Corp. reported Friday.
TMC financed $16.8 million of the total loan volume, including $2.2 million to refinance a warehouse and office building for VSR Industries in Henderson.
Refinancing through the SBA 504 loan program helped VSR weather the economic downturn, said Colton Vollmann, vice president and chief operating officer of the company, which makes cabinets, bases and locks for video poker and slot machines.
Commercial real estate values have plunged in Las Vegas, leaving VSR's 70,000-square-foot warehouse at 6190 Mountain Vista St. "upside-down" in loan-to-value when it came time to change banking relationships. The warehouse, once valued at $11 million, is now worth less than $4 million, Vollmann said.
"I'm calling it an albatross," he said. "A lot of owner-occupants are still in the same boat. Who needs to put money in a building when you need every dollar for operating expenses?"
First Service Bank of Nevada was the primary lender for VSR's refinancing at $2.7 million.
SBA 504 loans, established in 1980, enable small- and midsize business owners to buy, renovate or build commercial real estate. Loans are structured with a first mortgage from a conventional lender, typically at 50 percent loan-to-value, and a second mortgage from a certified development company such as TMC at 40 percent LTV.
Conventional loans usually require 25 percent down but SBA 504 financing requires 10 percent, making it attractive for business owners intent on cash preservation.
In October, SBA drastically revamped the program to reach more business owners. Many, like VSR, bought property at the height of the market and now face the daunting task of refinancing a property that has lost value.
For a limited time, owners can use SBA 504 loans to refinance existing commercial mortgages with 90 percent financing on the appraised value. They can now use the difference between their equity and appraised value for working capital.
"Frankly, to me, the refinancing in 504 loans came at exactly the right moment, especially in Las Vegas, for that type of product," Vollmann said. "I'm 100 percent convinced that's one of the better programs to come out of the government at this point."
TMC, which has provided $6.4 billion in financing for more than 3,900 businesses in California and Nevada, financed $268 million in SBA 504 loans this year, a 47 percent increase over the previous year and the highest level in the company's 30-year history.
Business has rebounded to prerecession levels, TMC President and Chief Executive Officer Barbara Morrison said. One of the most innovative provisions of the 2010 Small Business Jobs Act was the refinance portion, she said.
There is no cap on the amount of the first mortgage loan provided by the conventional lender, and the second-mortgage loan cap increased from $2 million to $5 million.
"It was a total lifesaver for many small businesses," Morrison said Friday from San Francisco. "Not only can you refinance existing debt, but if you have equity above 90 percent of appraised value, you can take out cash. There's no other way for a business to obtain working capital today."
In fiscal year 2011, the total volume of SBA 504 loans nationwide increased by 8 percent over 2010, and by 25 percent over 2009, the National Association of Development Companies reported.
Refinancing has surged in Las Vegas, Morrison said. In the last six months, 50 percent of TMC loans in Las Vegas were for refinancing, she said.
Morrison said TMC's portfolio is filled with a broad spectrum of businesses getting SBA financing.
"We're very happy to see the number of manufacturing firms because that sector has been hit hard," she said. "We need to do what we can to create jobs in manufacturing, high-paying jobs. One thing I heard when I was in Los Angeles is the apparel industry is coming back to the United States because they're tired of the knock-offs in China."
Contact reporter Hubble Smith at email@example.com or 702-383-0491.