Sandoval’s Session: GCSB Menu — To Serve Man?

To Serve ManNevada’s economic plan — hold another conference? There’s nothing like a lovely conference to get the juices flowing in regard to economic development.  Not that there’s anything essentially unproductive about getting small business leaders in the same room with government officials and inspiring speakers…but.   The Governor’s office and the Chamber are teaming up to present panels on “Access to Capital, Educating Tomorrow’s Workforce and Healthcare: Myths and Facts.” [NV2013]

The “grand sponsor” of the event is NV Energy.  Other sponsors include Heritage Bank, AT&T, Advantage Capital Partners, and IQ Technology Solutions.   [NV2013]

Skeptics may wonder what AT&T, whose petition to the FCC in 2013 is straight out the of ALEC model plans book, [HuffPo] wants to say to small business owners and managers in Nevada, other than to promote the idea that they should continue to utilize their old copper wires to offer U-Verse services over their system without all basic obligations and regulations on the state and federal level.  We might wonder about AT&T’s grand plans for broadband access for small businesses when these observations come to light:

“In 2009, AT&T’s started the federal ball rolling with comments outlining that the states should not have jurisdiction over broadband and it should be the exclusive purview of the FCC — read federal law. Moreover, regulations should be removed on virtually all aspects of their business that would be applied by either the FCC or the commission — including removing service quality requirements.”  [HuffPo]  (Emphasis added)

NV Energy is the self-same corporation purchased by Warren Buffet’s MidAmerican Energy Corp. for $5.6 billion this past May. [USAT] This would also be the self-same energy corporation looking for a rate increase:

“NV Energy’s residential power and natural gas customers would see rate increases starting in January under the utility’s three-year general rate case filed Monday with the state Public Utilities Commission.

The increases, which include a profit and must be approved by regulators, would add $1.48 per month to the average single-family residence power bill across Northern Nevada and $3.96 to the typical monthly bill for natural gas customers in Reno-Sparks. Commercial customers in Northern Nevada would see an average 2.81 percent decline in electricity rates under the filing.”  [RGJ] (June 4, 2013)

Thus far we have one corporate sponsor that wants to “transition” its communications services without making any real technological progress, and desires to do so without state “interference” or those “burdensome regulations” on quality of service; and, another that has a rate increase proposal before the PUC.  What could possibly get skewed?

Heritage Bank is pleased to tell one and all that it is the Number One processor of SBA 504 loans in northern Nevada:

Heritage Bank of Nevada has been named the #1 SBA lender for 2012 in Northern Nevada as the largest processor of SBA 504 loans.  In FY2012, Heritage Bank partnered with Nevada State Development Corp. to provide funding on 15 projects totaling $22,014,750. Heritage Bank’s portion of the loans totaled $9,812,788 and the SBA’s 504 loans totaled $8,179,000. [Heritage Bank]

SBA 504 loans are made to business owners for purchasing or refinancing commercial real estate.  As of January 2013, Heritage Bank had lent out funding for 15 small business projects totaling $22 million, with 90% of the funds for commercial real estate loans.  [RGJ]

A firm is eligible for a SBA 504 loan if it has a tangible net worth less than $15 million and an average net income less than $5.0 million after taxes for the preceding two years. [SBA]  It’s safe to say that most of Nevada’s small businesses would be eligible for these loans.

Grinding down a bit on the SBA 504’s:  A Certified Development Company (CDC) is a nonprofit corporation set up to contribute to the economic development of its community. CDCs are located nationwide and operate primarily in their state of incorporation (Area of Operation). CDCs work with SBA and private-sector lenders to provide financing to small businesses through the CDC/504 Loan Program, which provides growing businesses with long-term, fixed-rate financing for major fixed assets, such as land and buildings. [SBA-CDC]

The typical SBA 504 CDC has the following components:

  • A loan secured from a private sector lender with a senior lien covering up to 50 percent of the project cost;
  • A loan secured from a CDC (backed by a 100 percent SBA-guaranteed debenture) with a junior lien covering up to 40 percent of the total cost;
  • A contribution from the borrower of at least 10 percent equity.

So, a “project” would get its real estate, or equipment, loan in blocks —  50% from the lender/bank ; 40% from a CDC; and, a contribution of 10% equity.

What we’re not seeing in the Heritage Bank numbers are  7 a loans, those made to entrepreneurs and business persons who are launching start ups, or expanding businesses.  The 7a, or general business loans are the kind we’d most often associate with the start up, financing, or expansion of new businesses.

Between October 2012 and May 2013, the major players in the 7(a) program were Wells Fargo, Meadows Bank, Seacoast Commerce, Republic Bank, Hanmi Bank, U.S. Bank NA, Pacific Enterprise Bank, and further down the list, Heritage Bank with five 7 (a) loans out for a bank total of $1,170,000.  [SBA lenders]

If Heritage is seeking to inform more small business owners and managers of the availability of SBA 7 (a) loans that would be an excellent panel. However, if financing in Nevada is getting increasingly sucked into the “income generating property” business there are some questions which need to be raised.  How much money is getting resourced to real estate development firms seeking to buy up distressed property and make conversions to rental units?  Would a subsidiary of one of the Really Big Banks qualify as a business eligible for 504 loans?

Advantage Capital Partners is another of the highlighted sponsors of the Governor’s economic gathering.   The firm describes itself:

“Since 1992, we have raised more than $1.6 billion in institutional capital, often involving innovative structured financing solutions. Our capital has been provided by a large number of the nation’s leading insurance companies and commercial banks.”  [ACP]

Excuse me, but after the Debacle of 2007-2008, when I see phrases like “innovative structured financing solutions” my immediate reaction is to curl into a fiscal fetal position.  Why?  The very definition of structured finance is enough to bring on tremors:

A service that generally involves highly complex financial transactions offered by many large financial institutions for companies with very unique financing needs. These financing needs usually don’t match conventional financial products such as a loan. [Investopedia]

And what might be included in those “highly complex financial transactions?”   Some of our old and not-so-dear friends like: Collateralized Bond Obligations, Collateralized Debt Obligations, syndicated loans, and those wonderful Synthetic CDO’s etc.  I think we’ve seen this movie before, and the ending was — if not pleasant — at least memorable.

And, who’s paddling in these waters? “Our capital has been provided by a large number of the nation’s leading insurance companies and commercial banks.”  — What could possibly go wrong?

To Serve Man

On August 28, 2013 the Governor and the attendees of the GCSB conference will be under the Grand Sierra roof with (1) a communications firm that wants ever so much to be rid of pesky government regulations concerning customer service, (2) bankers who are delighted to offer SBA backed loans for real estate transactions, (3) a “high” finance firm still promoting the joys and profitability of synthetic CDO’s and other financial exotics that contributed to the Great Mortgage Meltdown, and an Energy corporation looking to increase its rates …

It could indeed be a menu To Serve Man.

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