The U.S. Small Business Administration has lowered the boom on REsource Capital Inc., the Folsom-based real estate financing entity.
On Monday, SBA handed down a decision permanently revoking the lender's 504 loan program authority and moved to seize its loan portfolio.
SBA said REsource Capital failed to establish and maintain a required loan loss reserve fund, failed to pay invoiced obligations in a timely manner and failed to maintain the ability to operate financially under federal requirements.
The SBA's action was accompanied by a scorching statement from U.S. Small Business Administrator Karen Mills.
The statement said, in part: "The U.S. Small Business Administration has no tolerance for fraud, waste, abuse or any other form of regulatory noncompliance in any of our programs.
"SBA is committed to ensuring small businesses have the access to capital they need to start, grow and succeed, while protecting the taxpayer dollars that are on the line."
Doug Elmets, president of Elmets Communications in Sacramento and a spokesman for REsource Capital, said Tuesday that the SBA's action covered a lot of old ground.
"This dispute has been going on for 29 months, and if there was a problem, it would have surfaced before," Elmets said. "The reality is there are no new facts in this case, and once the facts become apparent, it will be obvious that this is a tempest in a teapot."
Elmets said REsource Capital "has helped finance over 1,000 businesses in the Sacramento area alone. Some of those businesses would have had a tough time making it in the current economic environment without the resources of REsource Capital."
Elmets said the attorneys representing REsource Capital were in discussions on Tuesday evening with the SBA and hoped to resolve the situation.
SBA spokesman Mike Stamler said SBA regulations allow for decisions to be appealed in U.S. District Court.
SBA's 504 loan program is a key component of financing small- and medium-size businesses, by providing them with long-term capital to purchase or improve fixed assets or real estate.
The 504 program has long been regarded as a significant component of economic development in communities nationwide. SBA said REsource Capital was one of more than 260 authorized certified development corporations participating in the 504 program.
REsource Capital, established in 1978, has specialized in below-market, fixed-rate financing for commercial and industrial projects via the 504 program. The company's focus is in California and parts of Nevada and Oregon. On its website, it claims a portfolio of more than 1,200 loans.
A report accompanying the SBA's action cited an August 2011 review of REsource Capital's finances, with an SBA auditor concluding that the lender's "liabilities exceed the fair and realizable value of its assets and (REsource Capital) is unable to pay its debts as they become due."
The auditor also concluded that REsource Capital's ability to repay obligations of nearly $24 million "is doubtful."
In December 2011, REsource Capital challenged the balance sheet in the auditor's report. However, the response ultimately was not enough to negate the SBA's conclusions.
Now, SBA says REsource Capital is essentially insolvent, and its findings include a claim that the lender kept two sets of books for its loan loss reserve fund. The set disclosed to SBA removed hundreds of loans with an outstanding balance of nearly $200 million, officials said.
Since 2006, SBA said, REsource Capital has received more than $50 million in fees from its participation in the 504 program. Yet SBA said the lender has hundreds of non-performing loans with outstanding balances in many millions of dollars.