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EDCs want refinancing program brought backMany small businesses would benefit, they say

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Last September, Lancaster Ag Products refinanced $1.3 million in loans through the EDC Finance Corp., the lending arm of the Economic Development Company of Lancaster County. Including expenses, the new loan was $1.4 million.

"We cut our interest in half," said Larry Groff, the East Lampeter Township-based farm supplier's chief financial officer.

The deal will save roughly $39,000 the first year alone, he said, adding, "This will allow us to replenish some of our working capital."

The EDC Finance Corp. arranged for the loan under the U.S. Small Business Administration's 504 loan program. The loans are packaged into bonds by the SBA and sold to investors.

Normally, the program only authorizes new loans, not refinancing. However, 2010's federal Small Business Jobs Act, part of the government's economic recovery efforts, authorized the SBA to expand its 504 loan program temporarily to include refinancing of commercial mortgages.

The program was popular and useful, said Lyle Hosler, EDC Project Manager and vice president and director of finance for the EDC Finance Corp. Through it, companies could lock in a long-term, low fixed-interest rate, he said.

The EDC Finance Corp. handled 14 loans totaling $19.5 million under the 504 program in 2012, and about half were refinancings, he said.

The refinancing program expired in Sept. 27, he said, leaving about 400 projects unfunded across the U.S. Economic development advocates believe it should be reinstated, he said.

In February, U.S. Sens. Mary Landrieu, D-La., and Jeanne Shaheen, D-N.H., introduced legislation that would extend it for five years.

"I hope this passes," said Linda Goldstein, Harrisburg Regional Chamber & Capital Region Economic Development Corp. vice president and chief operating officer.

The legislation is known as the Commercial Real Estate and Economic Development Act, or the CREED Act for short. A House version was introduced in March.

The program is completely self-financed, with no tax dollars involved, the SBA said.

"Extending the 504 refi program is a common-sense way to help small business and create jobs without costing taxpayers," Landrieu, the chairwoman of the Senate Committee on Small Business and Entrepreneurship, said in a statement.

Nationwide, the SBA approved 2,731 refinancings under the 504 loan program, totaling $2.52 billion, according to information provided by spokesman David Hall.

In Pennsylvania, the refinancing program supported 55 loans totaling $67.7 million, the SBA said.

Initially, the refinancing program's criteria were very strict, Hosler said. In October 2011, the SBA loosened them and "fixed all the bugs," he said, "and demand took off from there."

Under the program, an equal or greater amount of bank financing accompanies an economic development corporation's loan, the SBA said. Combined with a loan package from Metro Bank, Lancaster Ag Products' total deal was $3.4 million, according to Groff and the EDC.

The $2.3 million in SBA-backed refinancing that Dutchland Inc. secured through the EDC Finance Corp. "is a great combination with our bank financing," said Don Sheaffer, Dutchland's vice president of finance. The total package was $5.625 million, according to the EDC.

Based in Sadsbury Township, Dutchland designs and builds concrete tanks and custom wastewater treatment plants.

The refinanced real estate loan originally had a variable component as well as a fixed component, Sheaffer said. The refinancing will save Dutchland $50,000 to $75,000 per year in interest, Sheaffer said.

The EDC Finance Corp. handled all the dealings with the SBA, Sheaffer said: "They were a great intermediary."

CREDC made two loans using the program, in Lancaster and Lebanon counties, totaling $3.3 million, Goldstein said.

In Lancaster, the EDC Finance Corp. shut off applications in time to get all completed applications funded, Hosler said. However, there's no doubt the organization would take advantage of the program again if it became available.

"We continued to receive inquiries after our internal deadline, which we normally would have processed into loans if not for the deadline," he said. "Demand's still out there."

Supporters of the CREED Act include the National Association of Development Companies, or NADCO, and the SBA itself.

Extending the program "could unleash billions of dollars of liquid capital now locked up in the assets of our nation's small businesses, without costing the taxpayers a dime," NADCO President and CEO Beth Solomon said in a statement.

A quarter-million businesses could benefit, NADCO estimates.

SBA Associate Administrator Jeanne Hulit said the agency fully supports extending the program, according to a news release.

Metro Bank made use of the refinancing program and definitely would use it again if it became available, Chief Lending Officer Adam Metz said.

"We view this as a way to make a good loan better for both parties," he said. Borrowers get a low, stable interest rate; lenders get reduced risk exposure, he said.

Hosler called the potential for 504 refinancing reinstatement one of the most important economic development stories of the year. By improving a company's financial picture, refinancing helps spur economic expansion, he said.

"Most refinance projects we processed ended up being linked to growth in the company," he said.

How it worked

The Commercial Real Estate and Economic Development Act, or CREED Act, would reinstate the U.S. Small Business Association’s 504 loan refinancing program. Here’s how the refinancing program worked from late 2011 until it expired in September, according to the SBA:

• The 504 program allowed participants to finance “up to 90 percent of the appraised value of available collateral.”

• Any business with a commercial mortgage at least 2 years old could refinance, regardless of maturity.

• Borrowers had to secure refinancing through a third-party lender (such as a bank or credit union) and an approved certified development company.

• The third-party lender’s share of the refinancing had to be equal to or greater than the amount financed through the SBA.


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