CRF Helps MNSTAR Protect and Serve their Markets

CRF to the Rescue!
CRF Helps MNSTAR Protect and Serve their Markets

By Kevin Riba, Regional Director of Business Development

CRF loans don’t arrive with sirens blaring. But they should be. Because CRF comes to the rescue of companies like MNSTAR that desperately need financing to help them retain and add jobs, protect and serve their markets.

MNSTAR Technologies is a perfect example of the type of company that CRF can help with an SBA 7(a) loan. (We announced in January that CRF was named as one of only 14 nationwide non-banking institutions to offer SBA 7(a) loans.)

MNSTAR, which designs and manufactures components like wire harness systems for police and emergency vehicles, had everything going for them – good credit, great prospects, loyal employees. But while they were able to remain current on all their debts, financial difficulties from previous years resulted in an improperly structured balance sheet that hampered their ability to attract short-term working capital, which they needed to move forward and grow.

Since 2009, their worst year, MNSTAR has been on the upswing. In 2010, sales increased by 91 percent over 2009, and in 2011, sales were up again by almost 42 percent. Despite this recent growth, they were unable to get traditional financing because of their debt ratios and past sales record.

A $1.2 million loan from CRF will enable MNSTAR to free up cash flow to help fund growth by restructuring debt into a long-term loan. The company will be able to retain 80 full time jobs – plus, they plan to double their staff in the next three years. They also expect to double their revenues in part by developing an expanded product line to attract new customers and industries.

“We never worked with the SBA before because it’s a scary process,” said Mike Rhodes, MNSTAR president and owner. “CRF helped us put our best foot forward and navigate the SBA process. Thanks to CRF, we got an offer in hand quickly and efficiently which will enable us to sustain and add jobs here in northern Minnesota.”

Post-Recession Blues

Post-Recession Blues

Companies that weathered the recession now have a new problem – refinancing debt

by Brian Burke, National SBA Lending Director

Typical post-recession scenario: ABC Company calls their bank to say that they’ve weathered the recession and they actually expect to turn a profit this year. But they’re totally stressed out about their high debt service payments. What’s to be done?

ABC Company is just one of many companies that are starting to see the light at the end of the recession tunnel. Now the biggest thing getting in the way of a full recovery is debt financing that’s sapping them dry. And ironically, their bank can’t help them, usually because of regulatory constraints.

Enter CRF. We come to the rescue in these types of situations, and now offer flexible loan programs such as the SBA 7(a) program. These programs make a huge difference in cases when it’s difficult if not impossible for companies to refinance their loans with traditional lenders.

In fact, this week, we extended a $1.2 million SBA 7(a) loan to a great mid-sized Minnesota company. They’ve got everything going for them – good credit, great prospects, loyal employees – but were still trying to emerge from the shadows of the Great Recession. While they were able to remain current on all their debts, financial difficulties from previous years resulted in a balance sheet that was improperly structured and hampered their ability to move forward, make needed changes, and grow.

With their new 10-year CRF SBA loan, they can expand, add jobs and comfortably meet all of their obligations. We’ll tell you more about them in future blogs.

Know other companies like ABC Company? Help us find other companies that need CRF’s help and together, let’s put an end to these post-recession blues.

Looking forward: New tools, new partnerships required to fund jobs, rebuild communities
Our vision for the community development industry

Frank Altman, President & CEO
Community Reinvestment Fund, USA

What’s the right size for government?

The federal budget battle has Americans discussing that question from Pennsylvania Avenue to Main Street. For the community development finance industry, a sector long reliant on tax credits, financial assistance grants, and guaranteed lending programs, the current debate is a wake-up call for how we do business.

The need for living wage jobs, affordable housing, and strong communities remains as urgent as ever.

Yet can our traditional financing vehicles, and even our traditional industry model, still answer this demand?

Traditional vehicles in jeopardy
Continued availability of New Markets Tax Credits (NMTC) allocations, CDFI Fund awards, and free-flowing capital markets remains uncertain in these anemic economic times. Even products with government guarantees, such as SBA 7A or SBA 504 loans, sit well out of reach for many lenders, due to strict requirements for balance sheet equity. Other options, like the new CDFI bond program, add liquidity to the market, but ignore smaller lenders unable to borrow in $100 million increments.

These are the critical tools that enable community lenders to support the small businesses that create jobs, and the projects that revitalize our low-income neighborhoods. But a “status quo” approach won’t be enough to get the job done.

We as an industry need to expand our financing options to deliver capital quickly and efficiently. We need to strengthen our relationships and develop a new, more collaborative network.

Defining a new, collaborative approach
More than 20 years ago, CRF pioneered a new method of accessing the capital markets to benefit small business owners and underserved neighborhoods. Today, our vision for community development finance means continued innovation—this time, to enable sustainable solutions and new partnerships that facilitate job creation and support disadvantaged communities.

These solutions include:
• A renewed commitment to collaboration. Tough credit markets require new partnerships among CDFIs, CDCs, community banks, and market-rate investors. National networks like CRF can play a matchmaking role to facilitate a value chain where all parties work together to maximize funding options. We must create relationships that empower multiple entities to work together quickly and seamlessly—as primary and secondary lien holders, poolers, packagers, project sources, and other roles.

• Options for smaller community development groups. Financing tools must remain accessible to organizations at all levels—not just those CDFIs who can afford multi-million dollar balance sheets. Preserving the local market knowledge of these groups is critical to identifying deserving projects, and providing business owners with technical assistance and hands-on support through all stages of their business.

• Pursuit of policies that support jobs and low-income communities. We applaud new alternatives such as the CDFI bond program, and actively advocate for proven channels like New Market Tax Credits. As an industry, we must continue to come together and tirelessly articulate the need for accessible, affordable small business financing options.

We’re excited about these opportunities and relationships. Watch for more details in the coming months.

Share your views on this critical issue.

NMTC Allocation 2011

The Power of 21
By Frank Altman, President and CEO

New Markets Tax Credit (NMTC) loans are the funds that keep on giving.

For every $1 they receive in NMTC loans, business owners in low-income areas generally are able to bring in an additional $21 in private sector investments. Private investors are motivated to invest in these businesses because the NMTC program offers them tax credits worth more than 30 percent of the amount they invested.

1:21 ratio? Not bad.

We just learned that CRF was one of 99 organizations chosen from a pool of 250 applicants to receive $77 million in new NMTC funds. The $77 million allocation was the largest amount awarded to 2010 applicants (only three organizations received this amount). Since the program began in 2001, CRF has received $674.5 million in NMTC allocations, making us one of the nation’s largest NMTC designees.

Congress reauthorized NMTC as part of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010. All told, the tax credits allocated last year came to $3.5 billion. Applicants had requested more than $25 billion, clearly demonstrating the appetite for investing in low-income communities throughout the U.S.

This new NMTC allocation will play a key role in driving capital to small businesses, who are the key drivers behind our economic recovery and job creation.

At a time when we’re all doing our best to find ways to extend a helping hand to low- and middle-income families and communities, this is truly news worth celebrating.

New Hope for Small Businesses On the Edge

New Hope for Small Businesses On the Edge
By Colleen Schwarz, VP of Sales

Last week, the SBA (Small Business Administration) announced a new set of rules for its 504 refinancing program. This program now gives new hope for the “neediest” small businesses that are teetering on the edge between making it and going under.

The SBA said it would temporarily extend its 504 refinancing program to allow small businesses “without business expansion plans” to refinance their mortgage debt. (In our last blog, we announced that the Morgan Stanley SBA 504 program was available through CRF, (see “Giving Small Business Lending a Jumpstart”).

What does this mean exactly? It means there’s new hope for small businesses that are in dire need of assistance. Those businesses with a mortgage renewal due date before the end of 2012 (including some that are potentially facing foreclosure) now have a new lifeboat.

We know there’s a huge pent-up demand by small business owners who need a longer-term solution to their debt issues.

Take, for example, a business that moved into their own building a year ago, when banks weren’t offering long-term financing. The business owner may have taken out a three-year loan, and now has to find some way to refinance it. The new rules enable the owner to refinance and restructure this debt into a fully amortizing program, even if they have no plans to expand or purchase real estate or other fixed assets.

Because there’s “only” $15 billion available for this temporary new program, the SBA is limiting the program to the “neediest” small businesses. However, they do plan to open the program up later (at an unspecified date) to other small businesses, if they haven’t exhausted the finances allocated for this program.

The new SBA lending rules should help drive much-needed capital to businesses and the surrounding communities, helping them avoid the worse-case scenarios, like closing their doors.

SBA’s goal with this program is squarely on saving small businesses that are on the brink. The SBA will refinance debt even if the small business has no plans to expand, add jobs, or meet any other higher objectives. And the new refinance rules also do not allow small businesses to refinance government program debt (SBA 7a) or an existing SBA 504 loan.

So it’s a proverbial finger in the dike. But at least it’s a start.

For more information on the SBA’s 504 Loan Program Debt Refinancing Program, go to: http://files.e2ma.net/1963/assets/docs/504_refinance_field_training021611.pdf

Morgan Stanley SBA 504 Program

Giving Small Business Lending a Jumpstart
By Frank Altman, President and CEO

If your car won’t start – something we get to experience living here in Minnesota –getting a jumpstart is a simple phone call to a three-letter organization.

Now, CRF (another three-letter organization) has a simple solution for giving a jumpstart to get small business lending running again.

Thanks to a new program, the Morgan Stanley SBA 504 Program available through CRF, we will be able to drive much-needed capital to businesses and the surrounding communities, helping them move forward in the right direction.

Here’s how it works: CRF works with Morgan Stanley to purchase eligible existing loans (new or existing first mortgages) from the banks across the country. This gives the bank the capital needed to turn around and issue new small business loans.

Morgan Stanley is making this program through CRF, playing on its network of lending partners and credit experience. By facilitating the purchase of these loans, CRF helps banks reignite small business lending, build their customer base and ultimately increase their bottom line. Plus, it helps banks meet their CRA (Community Reinvestment Act) requirements.

At a time when credit constraints have put a stranglehold on small business financing, we need creative solutions like this. It’s just one more way CRF is helping small businesses across the country access the financing they need improve cash flow, refinance debt, expand and create jobs.

Read more about the Morgan Stanley SBA 504 Program, now available through CRF: www.crfusa.com/SBA504.

State of the Union Statement

Putting America Back to Work:
Reauthorize the New Markets Tax Credit for Job Creation in Low-Income Communities

Statement by Frank Altman, President and CEO

We at the Community Reinvestment Fund, USA (CRF) wholeheartedly support President Obama’s State of the Union call to get American companies back in the businesses of creating jobs. The President noted that the stock market is strong, corporate profits are up and the economy is growing. Yet unemployment remains unacceptably high and for the most part the strengthening economy has yet to reach into America’s low-income communities, whether rural or urban.

Carolina Reid writing in the Federal Reserve Bank’s Community Investments cited Gregory Acs and wrote “The consequences of unemployment for low-income communities may also be higher; lower-income households experience greater income losses (as a percentage of income) during recessions, and it takes them longer than higher-income households to get back on their feet. Unemployment can have particularly devastating effects on single-parent households, as well as on households that have come to depend on two full incomes to make ends meet.”1

As we climb out of this recession, the imperative for job creation is clear and focus on low-income communities is compelling. That has been CRF’s focus since its beginning 23 years ago, having now lent $1.2 billion for community development. Just last month CRF’s Board of Trustees adopted our new strategic plan and that plan renews and strengthens CRF’s emphasis on job creation. It is and will be our #1 focus.

So we join with President Obama and the Congress. CRF pledges to do its part to get America’s small businesses moving and creating jobs. And we will continue to focus our energies on America’s low-income communities and disadvantaged populations. We have set for ourselves the goal of financing $290 million in community development projects in this next year. That amount will surpass our strongest year by almost 40%.

These loans will support jobs and strengthen the social ecosystem that supports those jobs, particularly in low-income communities. These loans will finance small and medium-sized businesses; they will build affordable housing, child care centers, community clinics, ESL and GED centers, workforce training centers and community centers. They will help people build their strong communities.

There is one tool that CRF and the CDFI industry can put to use right now; a tool that Congress can act on quickly. The New Markets Tax Credit (NMTC), enacted in a bipartisan manner in 2000, has over the years attracted $26 billion of private investment into low-income communities.2 It has been a great success. It is awaiting reauthorization.

The NMTC reauthorization got held up in the year-end politics over the Tax Extenders bill last year. But it need not be held up now. It has bipartisan support. It has a pedigree of performance. It has community developers all over the country ready to put it to use creating jobs. And because the NMTC by law is restricted to use only in low-income communities, those jobs will go where they are needed the most.

We at CRF call on Congress and President Obama to quickly reauthorize and sign the New Markets Tax Credit extension.

In his speech, President Obama said “We measure progress by the success of our people. By the jobs they can find and the quality of life those jobs offer. By the prospects of a small business owner who dreams of turning a good idea into a thriving enterprise.”

That measure is the most compelling argument for extension of the New Markets Tax Credit. Give us the tool and we will help small business owners turn those dreams into jobs.

1 Reid, Carolina (2009). “Addressing the Challenges of Unemployment in Low-Income Communities” Federal Reserve Bank of San Francisco, Community Investments, Vol. 21, No. 1, Spring 2009.
2 Community Development Financial Institutions Fund, Performance and Accountability Report Fiscal Year 2010, January, 2011.