Folsom lender locked out by feds

By: Penne Usher, Telegraph Correspondent
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A Folsom-based lender has been shut down by the U.S. Small Business Administration.

The SBA stated in a published decision that excessive losses and low reserves were reasons to close the business and move to seize the portfolio of EDF Resource Capital.

In the 82-page report, the SBA cited the lending business failed to maintain a loan loss reserve fund and a failed to pay its obligations in a timely manner.

At the heart of the issue was Resource Capital’s 504 loan program, designed for financing smaller businesses and providing them with capital.

The purpose of the 504 Loan Program is to encourage economic development within a community. The 504 Loan Program is delivered through authorized CDCs, which act on the agency’s behalf to arrange, close, service and (when necessary) liquidate and collect on 504 Loans. CDCs arrange 504 Loans with pooled funds obtained through SBA from capital markets; CDCs do not use their own funds to make any 504 Loans. All 504 Loans are 100-percent guaranteed by SBA, according to the report.

The report goes on to state EDF failed and “refused” to pay in excess of $20 million in loss-share and other obligations currently due.

“EDF is insolvent and not capable of paying its debts when due or otherwise timely or fully discharging its obligations, including those to the Agency (SBA). EDF’s outside auditor has refused to issue an opinion on EDF’s 2011 Financial Statements that were submitted to SBA on March 28, 2012,” the report states.

Calls to EDF Resource Capital were not returned as of press time.

“It is SBA’s final decision to permanently revoke EDF’s 504 program authority and to permanently transfer EDF’s 504 loan portfolio,” the report states.

As of Sept. 30, EDF Resource Capital had approximately 334 non-performing loans in its portfolio with a total outstanding balance of about $198 million. That portfolio represents up to $29 million in additional loss-sharing costs that EDF Resource Capital could owe the SBA.