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Special Reports
Commercial Loans
Mercantile Experiences Net Income Growth
By Amilda Dymi
Mercantile Commercial Capital LLC, which specializes in the U.S. Small Business
Administration 504 loan market, said it continues to experience significant net income growth.
President Christopher Hurn told ON the bank's first-quarter 2008 and 2007 year-round
success derives primarily from its niche product's attractiveness. "It's just becoming more obvious in the
current market, particularly with commercial banks tightening up," he explained. "We've been busier than
ever." In the first quarter, MCC saw a 38% net income increase compared to the first quarter of '07. Loans
in the quarter included three hotel properties in Texas and Louisiana valued at $14.2 million, he said. Altogether
during the quarter the company funded nine SBA 504 commercial project loans in five states for a total of $20.9
million. In 2007, MCC said it closed a total of 48 loans on projects that cost over $102 million. There also was
demand for new staff in the first quarter, which resulted in the creation of 119 new jobs.
"I'm always a big believer that when you lead with the best product the benefits
are multiple fold," Mr. Hurn said. "We've seen it before amongst ourselves. We offer this product and
the borrower comes back to us in two or three years when they need additional buildings. They can use their equity
savings using our 90% loan-to-cost on commercial projects. So they actually use their equity savings to reinvest
back in their business and grow their business that much faster."
MCC's 90% loan-to-cost financing, he said, consists of a 50% first mortgage, and
a 40% second mortgage, so the 10% difference represents equity for the borrower. According to Mr. Hurn, most commercial
loans in the country are 75% or 80% loan-to-value and the bank requires 20% down and MCC requires 10% down of the
total project, which includes closing cost, soft cost and all other costs. "The reason why a bank doesn't
promote this product very often is because a bank loan officer, the guy who's in the trenches in the street, he's
getting credit only for that 50% first mortgage," he explained. "He'd much rather offer a 75% LTV conventional
loan where he gets paid more commission."
Mr. Hurn believes in leading with the best product even if you make a little less
money, "because ultimately it comes back to us." Clients are loyal, he said. "The first quarter
of this year was the best quarter we've ever had in business in terms of revenue and profits. We have the largest
backlog of deals that we've ever had," he said. "Last year was another record-breaking year for us, and
this year we expect to even do better."
His optimism "probably is contrary to what you hear form a lot of other folks,"
he said, but it is the result of MCC being focused on its niche. It helps, he admitted, that everybody else is
now working on problem loans. "We turn away plenty of business that doesn't fit our particular niche,"
he said. "Most salespeople would have a real tough time with that, but I think it's a big reason why we've
been this successful."
MCC works both with brokers and a network of correspondents working in local markets.
It deals in property types such as office building, industrial warehouses, hotels and restaurants. Demand persists
despite the soft economy, Mr. Hurn said. But he would not call MCC's niche "recession proof."
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