Morgan Stanley today announced it will set aside up to $500 million to purchase new and existing small business owners' commercial real estate loans from regional and community banks so that they can use this cash infusion for new loans to spur expansion and the creation of new jobs in the small business sector.
The Morgan Stanley SBA 504 Program will initially be available through the nonprofit Community Reinvestment Fund, USA and CDC Direct Capital, a subsidiary of CDC Small Business Finance, a development company specializing in financing for small businesses.
The big-picture goal is to help small business owners hammered by both the moribund economy and the ensuing credit crunch to get the long-term financing they need to open new offices, purchase equipment and land and hire new staff.
For banks, the program will help limit their credit exposure, reduce interest rate risk related to fixed-rate loans, allows them to make more SBA first mortgage loans and retain more liquidity.
"By extending financing for small businesses to invest and grow, Morgan Stanley is reaffirming our commitment to put our financial capabilities to work in the service of the economic development of communities," Morgan Stanley CFO Ruth Porat said in a statement.
Morgan Stanley officials said CRF and CDC Direct Capital will work with a national network of financial institutions to facilitate the purchase by Morgan Stanley of existing and new loans collateralized by first liens on commercial real estate originated as part of the SBA 504 Program.
The new program comes on the heels of a new Wells Fargo/Gallup survey that found most small business owners are cautiously optimistic about their future business prospects despite their ongoing concerns about cash flow and access to credit.
Aaron Deer, a bank analyst with Sandler O'Neill & Partners LP, said that while conditions vary from market to market, the commercial real estate market as a whole is improving, valuations are stabilizing and that banks have and continue to make small business loans at a steady pace.
"I think that banks have been unfairly characterized as not lending to small businesses," he said. "There's a belief out there that's been perpetuated that's just not accurate -- that banks are unwilling to lend."
"Lending is how banks make their money," he added. "They do want to lend. The economic environment maybe hasn't been the best over the past few years and businesses that were considered more credit worthy when business was great became not so great when things became more challenged."
Morgan Stanley's new program could very well appeal to the thousands of small independent financial advisors and firms who themselves may be looking for new capital to hire staff, invest in new technology or open new offices.
While Morgan Stanley itself has a network of more than 18,000 financial advisors, it appears that any qualifying firm-- financial services-oriented or not-- would be eligible for the program.
"Under the program, Morgan Stanley will consider transactions that meet relevant underwriting criteria as well as SBA guidelines," said Sandra Hernandez, a Morgan Stanley spokesperson.