Even though Chase Bank shut down its $250,000 line of credit for Randy Lujan’s general contracting firm, Sonoran Bank thought it was worth the credit risk.

IFCM Inc. used the line about a once a year. It served more as a safety net than a funding mechanism for the bonding company. That’s why Lujan was surprised to see it had been removed when he checked his account online more than a year ago.

The bank told him since he didn’t use it, they chose not to renew it, eliminating some exposure.

“After that happened, it left a bad taste in my mouth,” said the president and CEO of the Gilbert company.

So he called a friend on Sonoran’s board of directors, and within weeks the line was granted and bumped to $400,000.

Lujan had a profitable company, good cash reserves, liquidity and excellent credit, but his trends were down even with a good pipeline of business from bank construction — ironically, mostly from Chase and Bank of America.

GOOD CREDIT RISK
The credit line is partially cash secured through a CD, creating no risk to Sonoran on that portion.

“He was a good credit risk for us,” said Frank Coumidas, senior vice president of lending at Sonoran Bank. “There’s not a lot of businesses right now that can say they’re trending up.”

IFCM used the credit line numerous times last year because business picked up as big banks received money through the federal Troubled Asset Relief Program. Without that line, Lujan said he would have needed to secure another loan.

Before the downturn, landing a commercial loan would never make headlines. But, given the credit crunch and this market’s reliance on financing, getting the green light for a loan is no small feat.

I/o Data Centers LLC, which designs and builds storage capacity for some of the world’s largest corporations, is well-capitalized and growing. But the company recently needed a loan for additional capital and infrastructure enhancements.

Executives began shopping a year ago for a debt provider and quickly were courted by financial firms, said Parker Lapp, chief corporate development officer of the Tempe company.

Mutual of Omaha prevailed, offering a competitively priced, long-term loan.

Kevin Hollarand, Mutual of Omaha’s head of commercial and real estate lending, said his bank looks at the individual seeking the loan, the company’s cash flow, collateral, and the overall conditions of the business and industry.

“We’re able to structure deals that correlate with the company’s cash flow,” Hollarand said. “A lot of banks aren’t even able to sit down with a client because they’re having capital or regulatory issues.”

Last year, Mutual of Omaha loaned more than $200 million in Arizona.

ESTABLISHED BUSINESS
Dean Rennell, head of Arizona business banking at Wells Fargo Bank, wants his team to identify the top 10 companies in each industry and seek their business. Each business banker is expected to make three face-to-face calls on prospects every week.

Rennell collects financial information from each potential borrower and links it to the size and type of loan request. He favors companies with established work contracts or specialized business lines.

That’s one of the reasons the San Francisco-based bank was attracted to American Metals Co., which processes, buys and sells scrap aluminum, brass, copper and other metals.

The Mesa company wanted to purchase a portable shredder, an $850,000 machine that breaks down scrap metal, which would allow AMI to sell the pieces directly to steel mills and consumers.

Finding financing was not easy.

President Irwin Sheinbein spoke to three other banks, which examined his records with a “magnifying glass” and “fine-toothed comb.”

“Getting the type of loan I wanted was frustrating,” he said. “As a small-business owner trying to grow my business, it was extremely challenging.”

After lengthy negotiations, Wells financed about 80 percent of the cost.

Sheinbein said the machine will bring in more revenue, while cutting freight costs in half by reducing the size of scrap. Although he secured a loan, he wants the banking community to be more sympathetic to the needs of small businesses.

“The economy depends a tremendous amount on small businesses such as ours,” he said.

Get Connected
American Metals Co.: www.americanmetalsco.com

IFCM Inc.: www.ifcminc.com

Despite owning a successful luminary business and having a $120,000 purchase order in hand from three major retailers, John Norberg couldn’t secure a loan from M&I or Chase banks.

Russ Perry’s young marketing and advertising firm has avoided debt and weathered a storm that rocked his industry, yet Wells Fargo bankers quickly told him he wouldn’t qualify for a line of credit.

It’s a common story for thousands of small-business owners in the Valley who continue to have loans rejected by banks, which sparks the question: What do we have to do to get a loan?

“You need to know what the bank needs to know before they need to know it,” said Scott Mahoney, managing partner of Catalyst Corp­orate Solutions in Peoria.

Mahoney has spent more than a decade in the financial services industry, including stints as a commercial banker at JPMorgan Chase & Co. and KeyBank’s Technology Investment Banking Group. Now, he’s advising businesses on how to land financing in a difficult environment.

Cash always has been king, but it’s never been more important than now.

“Cash flow, that’s paramount,” said Glenn Gray, CEO of Sunwest Bank, which took over First State Bank in Flagstaff after the Federal Deposit Insurance Corp. shut it down in September.

But that’s only one of the criteria his bank assesses before granting a loan.

QUALITY FINANCIALS
He advises business owners to have high-quality financial reports prepared by an accountant — even better, audited by a certified public accountant. Important factors include inventory, quality of receivables and their turnaround time, and current assets.

On the liability side, Gray wants to know whether companies are accounting correctly for their payables and accruing their expenses and cost of goods sold properly. He also wants to examine year-over-year trends and what’s driving revenue.

When a potential borrower doesn’t want to supply tax returns or reports a discrepancy between company financials and tax statements, that’s a big red flag, Gray said.

“We are certainly putting more credence on quality financials,” he said.

Jeff Kunkel, a senior vice president and West region manager of Chase, lists cash flow, liquidity and capital position among his highest priorities. But he also wants to know how a company has adjusted during the recession, the purpose of the loan, if it has been well-thought-out, and if the right business decisions have been made.

SINKING DEMAND
This year, Chase intends to double its lending to $10 billion nationwide and hire 325 business bankers to handle that load. If a loan is rejected, a second team will review it and help the customer find either an in-house solution or another lender.

In 2009, lending was way down at Chase, one of the largest banks in the world. When asked why, Kunkel said demand sank as businesses struggled to survive — a similar refrain among many bankers the Phoenix Business Journal talked to for this story.

“It wasn’t so much we stopped lending. The demand is what came to a screeching halt,” Kunkel said.

Norberg, president of RC Co., said he was turned down for a loan last May because of a lack of business experience. He bought the company two years ago, though it was established in 1984.

Norberg’s accountant drafted a business plan for the $100,000 loan, and he relied on the advice of his wife, a former business banker. But even a $120,000 purchase order from Walgreens, Ace Hardware and True Value wasn’t enough to sway the banks.

Within a few months, he found Performance Funding, a Phoenix factoring company that provides accounts receivable financing. The company provided the loan, and Norberg was able to order the supplies to cover the purchase order, which was more than he borrowed.

“If we wouldn’t have gotten funding from Performance last year, we would be bankrupt today because every penny we had, we put into that company,” Norberg said. “We wouldn’t even be in our house.”

ACCESS TO CAPITAL
Perry gave up looking for a credit line after being discouraged by the process. He was seeking a $10,000 to $20,000 credit line as a precaution, in case he needed to hire a new employee or buy software or hardware.

He was rejected a few days after he applied, which entailed filling out a form with personal and business information.

“There was no guidance after that,” said the founder of Keane Creative in Tempe, which has never posted an annual loss.

Perry had worked with the same banker for years and established business accounts with San Francisco-based Wells. Despite the setback, his company hasn’t switched banks. He likens the idea to leaving the Mafia.

“Since then, I haven’t tried again. I felt like a little fish,” he said. “It is very hard to grow because we can’t get that access to capital.”

Get Connected
Keane Creative: www.keanecreative.com

RC Co.: www.luminarias.com

Wells Fargo: www.wellsfargo.com

JPMorgan Chase & Co.: www.jpmorganchase.com

Sunwest Bank: www.sunwestbank.com

Securing a Business Loan
Do
1. Have your financial statements in order. Lenders want to know the business is making money.
2. Be able to explain how the loan proceeds will be used. Lenders like to know whether the loan proceeds are going to increase cash flow.
3. Make sure the business has enough collateral (e.g., accounts receivable) to justify the line of credit. Collateral are assets offered as a repayment source.
4. Ensure the owners are invested in the company. Lenders are looking for sufficient equity in the company on the part of an owner.
5. Know your local economy and competition. Be prepared to describe the primary threats to the business and what measures are being taken to protect the company from these risks.

Don’t
1. Lie or overstate items on the application, financial statements or your personal financial statement.
2. Get too small a line of credit. If sales are growing quickly, you may not have enough credit to fill orders.
3. Get just one term sheet. There are plenty of lenders, so find one that understands your business and has a good rate.
4. Stop communicating. Whether it is a cash-flow issue or a business opportunity, talk to your lender. Lenders are proactive and can offer solutions.
5. Bluff. Do not threaten to leave a lending relationship just to get a better deal. The lender may just call your bluff.

Weeds and overgrown landscaping obscure a for-sale sign in the front of the foreclosed home northwest of Deer Valley and Cave Creek roads in north Phoenix.

The penthouse in the historic Orpheum Lofts is listed for sale at $1.75 million. High-tech entrepreneur Scott Jochim put the 2,777-square-foot luxury property on the market after spending $500,000 and hundreds of hours to build it out to exacting art deco standards.

The property includes 1,500 square feet of rooftop decking that incorporates a cabana and large hot tub with 360-degree views and space to plant gardens or add more deck. Jochim owns the entire roof of the 11-story Orpheum Lofts, at 114 W. Adams St. in downtown Phoenix.

Although he’s had only about 18 months to enjoy the fruits of his labor and says he loves it, Jochim has put the signature property on the market. It’s time to move on to the next project, he said.

Jochim is founder of Digital Tech Frontiers LLC, a Tempe company that produces virtual reality programs for the education, travel and medical industries.

The 36-year-old maverick has integrated technology throughout the house, both for entertainment and comfort, including video, audio, lighting and HVAC systems.

As the private elevator opens onto the stark white limestone floors, a digitized female voice says, “Good morning.” If Jochim is late getting home, the voice says, “Where were you?”

There also are other fun greetings. Whenever the elevator door opens, he receives an e-mail informing him of an arrival.

Jochim was a suburbanite living in Ahwatukee when he stumbled on the opportunity to purchase the rooftop shell of the Orpheum Lofts from developer Norm Sheldon in 2007. Sheldon and his partners had remodeled the 1931 building from offices to private residences.

Sheldon had intended to build out the penthouse for himself, but changed his mind and sold what was then unlivable space to Jochim for $800,000.

Jochim served as general contractor, supervising a bevy of subcontractors, including a cabinetmaker who went out of business because of the recession. Jochim took over the payroll to complete his project. There were other challenges, such as working full time at his company “and then coming here to the job site from 5 to midnight, seven days a week.”

The outcome exceeded his expectations.

“I have this home that is timeless. It’s like living in the Wrigley Mansion. I wish I could hold on to it forever,” he said.

Jochim has enlisted David Newcombe of Russ Lyon Sotheby’s International Realty to market the property. In the meantime, he leases it out about once a month for weddings, photo shoots and special events.

“This place should not be hidden,” he said.

In fact, Jochim thinks potential buyers might be able to convert the penthouse to a commercial use, but likely would have to obtain approval from the homeowners association.

Jochim said the penthouse was built to meet commercial codes. As an added incentive, the building is listed on the National Register of Historic Places, which carries a significant reduction in property taxes.

The building has 89 other units, ranging in size from 700 to 1,800 square feet. Seven are on the market, including one in foreclosure, according to information provided by Russ Lyon Sotheby’s.

Across town, Keith Mishkin, founder and broker of Cambridge Properties, is listing one of the penthouses at the Esplanade near 24th Street and Camelback Road.

The sellers are empty-nesters looking to trade in their high-rise lifestyle to build a single-family home in Paradise Valley.

Urban condos throughout the Valley are selling quickly now that lenders have sold the properties to new developers at sizable discounts. The buyers, in turn, have brought the condos back to market at affordable prices.

In other cases, the original developers are re­adjusting prices and aggressively marketing urban living as the wave of the future.

To grease the process, MetLife Home Loans has stepped forward to take a preferred lending position on several urban developments, including One Lexington and Portland 38 in Phoenix, and Bridgeview in Tempe.

“MetLife is more capable of handling projects outside the box,” said Nicole Corning, a MetLife mortgage consultant. “MetLife is East Coast-based, and condos are very much an East Coast product.”

MetLife acquired First Horizon Home Loans in September 2008. First Horizon was a big player in the Valley, providing mortgages to home builders. With the change in ownership, the core business remains the same, but MetLife is sweet on the condo market and is providing mortgages to buyers.

The financing — which real estate experts say has been tough to secure for condo properties — and the lower prices have created a demand that hasn’t been seen in the past couple of years.

One Lexington is among the first high-rise condo properties to return to market.

The project was a complicated conversion of an office building into contemporary condos. Equus Development Corp. was caught in the real estate squeeze at the beginning of the economic crash. Although Equus sold several units, the process stopped when the developer defaulted on a $39.9 million loan from M&I Marshall & Ilsley Bank. The bank took back the property and began shopping for an investor.

Vancouver, British Columbia-based Macdonald Development Corp. paid $16 million for the project Jan. 27, according to records at the Maricopa County Recorder’s Office.

That marked the first major Phoenix purchase for the Canadian firm, which has invested heavily in Atlanta.

“We prefer urban buildings in an urban setting surrounded by office space,” said Rob Macdonald, president of the company. “We loved this project because it is on the light rail line.”

Macdonald moved quickly to put a team into place and opened the building for sales March 27. Twenty contracts were signed that weekend.

Prices are about 50 percent lower than what Equus was asking during presales — $240 per square foot, compared with about $500 before. The smallest units are 734 square feet. The two-story penthouses are between 1,653 and 2,846 square feet.

“Nobody expects to see that these are the best views of Camelback Mountain,” said David Newcombe, a broker with Russ Lyon Sotheby’s International Realty, who is leading the One Lexington sales team.

While some real estate observers have questioned whether there is any market for dense urban infill developments, Newcombe is convinced that housing product is needed.

“Where the basis has been properly adjusted, we are seeing a pent-up demand for urban living,” he said.

At Tempe Town Lake, some of the Valley’s highest-end urban condos sat vacant during 2009, when not one unit was sold at Bridgeview in Hayden Ferry Lakeside. Before that, 40 condos were sold at prices ranging from $800,000 to $1 million-plus.

Denver-based Condo Capital Solutions bought the 64 unsold units for $20.3 million in August 2009 from the builder, SunCor Development Co. SunCor has been selling off assets since its parent company, Pinnacle West Capital Corp., decided to get out of the real estate business.

Four units have closed at Bridgeview since January, with prices ranging from almost $400,000 to $700,000, and three others are in escrow, according to broker Katie Williams.

There are all types of scam artists out there. Sometimes it’s hard to tell the difference between legitimate companies and scam artists.