Lenders tighten budget squeeze

sacramento -- By the time a state budget is passed, Janet Rios will be at least $4,000 poorer. That’s the 19% in interest Rios says she must pay on loans to keep her two nursing homes afloat until lawmakers can agree on a spending plan.

Rios would seem to be a welcome client for any bank. The state pays her to take care of the elderly, and once the budget impasse is broken she’ll get a bundle of money that has been delayed. She just needed emergency funds in the meantime to pay the Stockton homes’ bills.

The state offered to guarantee the money in a letter she could take to her bank, Wells Fargo. But “they said that is not an acceptable thing to base a loan on,” she said, and classified her as a high risk, with an interest rate to match on two $100,000 lines of credit.

The state won’t reimburse her for the interest. Still, she said, she had no choice but to take the bank’s terms. “We have to take care of 15 residents in wheelchairs. We have people getting fed through tubes in their stomachs. Some have seizures. Some need oxygen. There are a bunch of things we have to do. Nobody cuts us any slack.”

Wells Fargo declined to comment.

Scores of people who run nursing homes, medical clinics, day-care centers and other facilities complain of being gouged by lenders while they wait to receive their state payments. The fees quickly add up to thousands of dollars, and it will come out of their own pockets.

Late budgets happen almost every year in California. But while many hospitals, community colleges and other large institutions that rely on state money have prearranged credit to fall back on until state funding resumes, most state contractors have smaller facilities that must rely on local lenders.

This year’s budget impasse crept up on contractors. The umbrella organizations that represent them in Sacramento had signaled that a prolonged deadlock was unlikely, because the spending sought by Democrats was nearly identical to that proposed by Gov. Arnold Schwarzenegger.

But in a surprise move, Senate Republicans refused to approve a spending plan until certain environmental regulations were rolled back. The standoff is now 50 days old.

Checks to contractors have stopped. Many say they received a frosty response from their bankers.

“Some of us have been able to teach our bankers over the years that this is a good loan,” said Ron Dodgen, the chief executive of Genesis Developmental Services, which serves 200 developmentally disabled Californians. “The risks are low. They are going to make money on interest, and in the end the budget will get passed.”

But most bankers have yet to reach that conclusion, Dodgen said. “They don’t understand this process,” he said.

That has left those in need of emergency cash paying steep rates for short-term loans, which under normal circumstances would be the cheapest kind of borrowing.

Maureen DeLeon, who operates homes for developmentally disabled children and adults in Chino and Cypress, said her situation has become so desperate that she has begun running a large chunk of her business on credit cards. The state owes her more than $40,000.

“I’m pulling off of credit cards to survive,” she said.

The cards, which typically come with high interest rates, are often an option of last resort for business owners when it comes to paying for staff and mortgages.

DeLeon is lucky; her credit cards from Bank of America cost less than 3% if she pays them off within a couple of months. But each allows her to charge only $15,000 -- not enough to meet her needs.

She has maxed out the cards. A line of credit with an 11.99% interest rate has been used up as well. If a budget is not passed by next week, DeLeon said, she’ll be out of cash altogether. And possibly out of options.

“I’m going to have to rely on the bank to help me” with a larger loan, she said. “They know me, and I have been with them 30 years. But I can’t tell you if they will or not.”

Some nonprofits have tried to step in for state contractors, but their resources are limited.

NCB Capital Impact, an Oakland nonprofit that provides loans to “underserved” communities, has offered several health clinics loans with interest rates in the 6% range to make it through the impasse.

“It’s ridiculous that health centers get put into this mess so often,” said Jeff Brenner, chief financial officer at NCB. “Clinics found our role helpful since we have a familiarity with their revenue streams. We know how to verify with the state how much money the lender is owed. That gives us a good sense of what the borrowing capacity is.”

Medical providers such as Elizabeth Benson Forer, chief executive of the Venice Family Clinic, say NCB has been crucial in helping the business weather the financial tumult.

“They can be helpful and quick in turning around a loan for clinics in difficult situations,” Forer said.

But NCB has limited resources, Brenner said. The nonprofit has provided a few dozen bridge loans over the last several years. This month alone, hundreds of small businesses and nonprofits have sought such loans.

“There is only so much to go around,” Brenner said.

Lillibeth Navarro, who runs a support center in downtown Los Angeles for people with disabilities, knows that firsthand.

She already had a long-standing $45,000 line of credit from the nonprofit Local Development Corp. in Los Angeles and had no problem getting it to temporarily double that amount. But she needs at least an additional $100,000 to keep paying her staff and cover other expenses.

For that, she has turned to Bank of America, hoping the lender will extend a smaller line of credit she already had there at a 10.3% interest rate.

“We have been negotiating with them and have yet to find out their decision,” she said. “We are praying for that extension.”

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evan.halper@latimes.com