SBA 504 loan activity surging in Northern Nevada

The Nevada State Development Corporation is experiencing record-setting volume in loan financing activity.

The Nevada State Development Corporation is experiencing record-setting volume in loan financing activity. Photo: Adobe Stock


Evan Dickson was worried. It was shortly after the pandemic hit, and the president of the Nevada State Development Corporation was prepared to see many of the nonprofit’s clients go under.

Consequently, NSDC, the largest provider of SBA 504 loans in Nevada, feared it was going to be hit hard, too.


“We’re a small business, too, and we’re putting together a budget and we’re thinking, this could be detrimental to us as a small business,” Dickson recalled during a recent interview with the NNBW. “Because we could have a lot of small businesses within our portfolio that are failing and have foreclosures. We planned for it to be a relatively tight year.”


That outlook began to change after the government rolled out coronavirus relief programs, such as the Payroll Protection Program, to help small businesses keep their workforce employed and stay afloat.


And once the Nevada economy began to reopen and consumer confidence rose, entrepreneurs turned to organizations like NSDC to grow and strengthen their businesses through SBA 504 loans, which provide long-term financing of up to $5 million for the purchase of real estate, equipment and other fixed assets.


In the 2020 fiscal year, NSDC says it completed 65 SBA 504 loan approvals, nearly a 23% increase compared to its average volume of 53 over the past several years.


“I projected we would, best case, have a break-even year, but I’m happy to say I was way wrong on that,” Dickson said.


Evan Dickson

 

And that trend has not slowed down. In fact, NSDC is experiencing record-setting volume in loan financing activity.

As of mid-June, the organization had completed 68 loan approvals in the current fiscal year, which runs from October 2020 through September 2021, said Dickson, adding: “I think we’ll be somewhere in the neighborhood of 80 to 85 loans by our fiscal year’s end.”


Dickson said the loan activity in Nevada is a microcosm of what’s happening nationwide. The SBA’s CDC/504 loan service center is receiving more than 1,000 loan packages a month, he noted.


“The processing times on submitted a 504 loan used to be in the neighborhood of three to five days,” Dickson said. “Now, it’s 20 working days because their volume is so backlogged with how many deals they are getting in there.”


Which begs the question: Why are SBA 504 loans on the rise and such a popular option for small businesses?


For starters, the loans are structured with 50% lending from a bank or credit union, 40% through an SBA-approved certified development company (such as NSDC), and only a 10% down payment by the borrower, said Doreen Lorinczi, VP of commercial production at Greater Commercial Lending, a subsidiary of Greater Nevada Credit Union.


Doreen Lorinczi

 

“With 504 loans, it’s desirable because you’ve just gone through a pandemic, so you don’t have the same cash flow that you may have had in previous years,” Lorinczi said. “And they only have to come up with 10% down.”

Another big benefit of SBA 504 loans, which feature 10-to-25-year terms, are the low interest rates and long terms. Since the loan is government-backed, the rates and fees are significantly lower than what a business would find with a bank loan.


The SBA sets standard fixed rates for the CDC portion of the loan, which have hovered between 2.5% and 3% in 2021, according to CDC Small Business Finance.


Dickson said the NSDC has been funding many of its loans at approximately 2.75%.


“The rate on that is super attractive,” Lorinczi said. “In commercial real estate, you don’t generally see rates like that. You might see a rate from a stellar borrower in the 4% range, but for your average borrower, they’re going to be in the 5% to 5.5% range.”


And SBA 504 loans are not only attractive to the borrowers.


“As lenders, we like to mitigate our risk, and we’re only into the project for 50% of the loan-to-value on the property,” Lorinczi explained. “Being in that first position at that low loan-to-value rate with a borrower that only had to come in at 10% down, and their business is paying the mortgage on it … and if the business is renting, you can give them credit for that rent and then that shows them cash flow available to pay the mortgage … it’s like a win-win for everybody to do this program.”


As such, Lorinczi and Dickson expect to see continued demand for SBA 504 loans through the rest of 2021 and beyond. And they both said it speaks to the resiliency of Nevada’s small business community and the rebounding economy.


“We’re still seeing a lot of volume, and I think we’ll continue to see people try to get into the program and move forward with their loans,” Dickson said.


“The entrepreneurial spirit is alive and well,” Lorinczi said. “People didn’t let this period stop that creative thinking. I think greater Nevadans have seen opportunities that they want to try to capture.”


Aside from SBA 504 loans, Greater Commercial Lending has kept especially busy providing PPP loans throughout the pandemic.


All told, during 2020 and 2021, GCL made PPP loans totaling $737.7 million to small businesses and nonprofits in all 50 states and six U.S. territories, according to a June 22 press release.


It represents the largest PPP sum from any U.S. credit union entity in the U.S., according to data published by Credit Union Times.


In Nevada alone, GCL says it made PPP loans totaling more than $190 million, providing 3,364 loans to Nevada businesses for an average of $56,532 each. This, GCL says, resulted in 23,104 jobs preserved in the Silver State.

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