Update on Financing for Downtown Projects

January 4, 2012

by Pamela Sutherland

Originally published in Trend Report

Downtown Tucson is continuing its momentum with more restaurants opening every month (Playground just opened on Congress and 5th Avenue, and Reilly Pizza plans its launch later this month).  Unisource opened its new building in November and now has approximately 500 people Downtown, and the FBI is preparing its new building with another estimated 500 workers Downtown shortly.  Several mixed-use projects are in the pipeline (residential and commercial) – stayed tuned for exciting new developments Downtown!

But money is still tight.  Banks generally have funds to lend, but due to internal and external pressures they are being very selective with borrowers.  Alliance Bank of Arizona has been one of the few banks to steadily provide funding for Downtown projects; Bank of Tucson has continued to work with its long-time clients; but for many restaurant owners or start-up businesses, funds are scarce.

Have you considered?

You should start with your own bank, and ask about any current programs they have to assist your business.  Most banks have some relationship with the Small Business Administration and can provide an SBA-secured loan (504 loans require 10% from the owner, 50%  from the bank, and 40% guaranteed by the SBA;  7(a) loans are for larger amounts of capital; there are specific loans for veterans).  Our web site has a comprehensive list of these programs and talk to your bank.

Locally, we have resources for microloans and small business loans from the Microbusiness Advancement Center/Small Business Development Center (MAC/SBDC) and their partner Accion.  Loans are available from $500 to $350,000 and collateral requirements are flexible.  Of particular note is a program run by Accion to help businesses restore their credit by making small loans.

The Business Development Finance Corporation (BDFC) has been a long-time supporter of Downtown businesses.  BDFC is a Community Development Corporation and can make loans pursuant to the SBA’s 504 program as well as through other funding sources (BDFC is staff for the Tucson IDA which may assist in financing for businesses when no other financing is available).

The Community Investment Corporation (CIC) has more flexible investment guidelines (for example, it is capable of making an equity investment rather than just a loan in a company).

Programs in the pipeline

The City of Tucson is in the process of finalizing a $20M loan program (HUD 108 loan guarantee program).  While the details have not been finalized, the program will be directed at projects between $1-5M that involve expansion or maintenance of workforce (the funds are tied to the number of jobs created).  Mayor Jonathan Rothschild has been a supporter of identifying untapped sources of federal funding to help Tucson’s economic recovery, so expect to see this program finalized soon.

How do we support the restaurants and retail that have been our pioneers in this latest Downtown revitalization?  One issue we hear repeatedly is the need for gap funding that is more flexible than either conventional bank programs or federal programs.

To assist with this, Downtown Tucson Partnership is developing a revolving loan fund for loans between $10K-$150K.  The Pima IDA is partnering with the Partnership to identify grant and loan funds to then be matched through a program with the US Economic Development Administration (EDA).  Our goal is to establish a $1M fund.  The CIC (noted above) will be administering the fund with the Partnership.

The fund will be for businesses – job creation and retention.  The targeted area will be the 3.9 mile streetcar route and surrounding areas.  Enrollment in the MAC/SBDC business program (or graduation from the program) will be a requirement for businesses seeking the loans.

The EDA program is competitive and we will be submitting our application in March for consideration.

And something to consider

The Federal government appears to be committed to the New Markets Tax Credits program.  This complex program offers a 39% tax credit for qualifying projects and may be “twinned” with other tax credit programs such as Historic Restoration Tax Credits (a 10-20% tax credit program).  The process for NMTC is complex, but we would like to see Tucson businesses use these tax credits so please contact us for assistance.  We have been cultivating relationships with CDEs which have allocations of the credits, and would like to sponsor an informational seminar in late January.  Please call our office or email Pamela Sutherland for further details.

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