An Update on Nevada’s Financing IndustryWhat goes into getting a project financed and keeping it afloat

 

Business is booming across the state of Nevada. As established international companies continue to move offices and even headquarters to the region, alongside new, local businesses opening doors, one issue is top of mind: financing.

The Financing Process

Shannon Petersen, executive vice president and corporate banking director of Nevada State Bank, said Nevada’s projects are still traditionally financed. ​​”Project financing continues to rely on traditional bank debt – there are no new standards or methods,” she said. “While companies continue to do very well financially, we are seeing some companies report diminishing backlogs and work-in-progress metrics.

If a company has fewer projects in the pipeline, a bank may interpret this as a red flag. A green flag, Petersen said, is a long, stable history of profitability. “Banks are looking for stable historical cash flow and reasonable leverage to ensure companies can weather future challenges,” she said.

Although bank debt is the primary source of funding, banks aren’t as eager to work with an entity that is almost entirely funded by debt. Keeping the leverage ratio in mind – the proportion of borrowed funding in contrast to the investments and assets of a company – is still important.

“Low leverage signals financial resilience and positions companies to navigate potential downturns,” she said. “Maintaining lower debt levels gives them greater flexibility to make strategic decisions if conditions shift.”

Petersen said a “banker’s dream” for a project, whether it’s brand new, expanding, or an acquisition, is that combination of stable historical cash flow, low leverage, and proven experience.

Even with this perfect mix, Petersen said some construction projects in Nevada continue to face an uphill battle. “Owner-occupied ground-up construction remains challenging due to persistent cost pressures, whether they be related to labor, supplies, or tariffs,” she said. “We’re watching the contractor and subcontractor space closely.”

Over-leveraged projects are hitting walls this year, said Frank Swain, managing director at PACE Equity for the Intermountain West, including Nevada.

“There were many projects built in the early 2020s when capital was very cheap, really easy to get,” Swain said. “Now, the lease-up didn’t follow through, the financial marks weren’t met, and now, you’re over reliant on expensive debt.”

Working primarily in commercial property assessed clean energy, or C-PACE, Swain helps these commercial projects turn to recapitalization. Recapitalization helps alleviate the stress,” Swain said. “We come in and try to deleverage the existing loan, replenish debt service reserves, and buy down the expensive financing.”

PACE Equity can offer a chunk of capital – sometimes up to 20 percent of the project cost, or even higher in Nevada’s markets, Swain said – that helps to reduce payments due.
“It gives the asset time to hit pro forma in a way that’s amenable to everyone, including the senior lenders who have a mortgage on that property,” he said.

The 504 Loan Program

Another option for financing is through the U.S. Small Business Administration’s (SBA) 504 loan program: long-term, fixed-rate financing through certified development companies. While this is also a debt strategy, it comes with more benefits than a standard loan.

The Nevada State Development Corporation (NSDC) is one of these outlets, with offices in Reno and Las Vegas. Evan Dickson, president at the NSDC, said if an entity qualifies for a 504 loan, it can be a big boon for development.

“If you’re looking at a conventional loan, you might have to come in with 20 percent or more down,” he said. “For a million-dollar building, that can be you coming in with $200,000 plus. With our program, a borrower could get a million dollars for as low as 10 percent.”

That substantial capital savings, Dickson said, often goes right back into the business. “It means a lot for businesses, especially small ones, to have that capital readily available to invest again,” he said. “We see these saved funds used to grow the business and create jobs.”

The NSDC works in partnership with all the financial institutions in Nevada – banks, credit unions, and all kinds of financiers – to take a portion of the financing, while the institution holds the remainder through its lending process.

“The financial institution we partner with on the loan takes the first lien position on the collateral, a much more secure position,” Dickson said, “Then we, through this program, take a second lien. That’s what makes the lower investment from the business possible.”

As a federal program, however, there are some limitations to the types of entities that are eligible for 504 financing. “You have to be a for-profit business,” Dickson said. “We won’t do marijuana, or anything associated with it, as well as businesses with more than a third of gross revenue coming from gaming sources. This limits us here in Nevada a bit, as we can’t do a lot of taverns or casinos.”

If a company is in Nevada when applying, it’s welcome. Dickson said he’s seen an influx of Californians and other surrounding states leveraging the 504 program to open doors in Nevada.
“We do about $50 to $60 million a year in loans, and today, about 10 percent of that comes from these out-of-state companies,” he said.

There are, however, limitations on what the SBA defines as a “small” business. “In the last two years, the SBA raised the definition of ‘small’ to be an average net income of six and a half million dollars from the two years before applying,” he said. “I tell people, don’t be discouraged by the ‘small’ – it’s a big range, and all kinds of companies can fit into it.”

Multiple Options

With all these options, there’s really not one right way – or just one lender – to finance from. However, Swain cautions borrowers to go into any project “clear-eyed,” to avoid decision-making that will later result in his recapitalization work.

“A decade of really cheap money and really high leverage was the status quo,” he said. “It was. Now, inflation has hit, and the cost of many things has gone up, not to mention other macro issues like tariffs and politics. Banks are more conservative. Projects are more relationship-driven, and you need to cast a wider net when you’re looking for financing – you’re not likely to find many one-off transactions with banks. Everything is circumstantial to the project.”

In the 2010s, Swain said he saw many projects financed at 80 to 85 percent debt. Now, he said it’s more like 70 percent as the absolute max. “You’re going to have to contribute some of your own money, even if you’re using us, to fill the gaps,” he said. “You will still have to find some equity checks from folks outside to satisfy the capital stack.”

To revitalize a project, Swain said PACE gets creative. “We can use new market tax credits, historic tax credits, and other environmental initiatives to take a zombie building and turn it into a bustling asset.”

What Projects Get the Financing Money?

Since Swain works in the commercial sector, most of the financing he manages goes to hotels and apartments, across the intermountain west and in Nevada, especially.

“Our top two asset classes are hospitality and multifamily,” he said. “This is true not only in Las Vegas and Reno, but in more rural areas of the state, where PACE financing is becoming more common. We’re working on a strong multifamily project out in Lyon county, and we’re very hopeful for its success.”

Dickson said across the state, the companies NDSC helps finance are vast and varied. “Many industries and companies are benefiting from the 504 program,” he said. “It’s all over the board.”
Professionals are the biggest growth space lately, he said, with doctors and attorneys in search of funding. “We also do a lot of daycares,” Dickson said. “Though that’s pretty new.”

As the SBA continues to push manufacturing, Dickson said more effort has gone to industrial and manufacturing businesses in the last year as well, but not enough to tip the scales into a majority.
“We’re fortunate not to have any concentration issues where we’re heavily leveraged in a particular space,” he said. “Our diversity is a good thing.”

For Petersen, when it comes to new corporate projects, there’s a bit more consistency in financing. “Businesses that are adjacent to or support the data center industry continue to perform well, with demand in this space continually increasing,” she said.

In Las Vegas, many entertainment-based projects are also underway — including the A’s stadium on Las Vegas Boulevard and several casinos, both on and off the Strip, undergoing major renovations.

Interest Rate Trends

While interest rates fluctuate, Petersen said she hasn’t seen them impact borrowers’ behavior negatively.

“There seems to be a consensus among economists that rates will drop before year-end, possibly in September,” Petersen said. “The rates, although up from three to five years ago, remain relatively low compared to longer historical periods, and are still appealing for borrowers and the right projects, whether they be acquisition, expansion, or replacement equipment. I don’t anticipate interest rates being an obstacle to financing commercial projects in the near future.”

Editor’s Note: As of press time, the Fed announced a quarter point rate cut.

In fact, for the NSDC, borrowers are more active than ever. “We’re tracking to be up 24 percent from last year,” Dickson said. “That’s a 24 percent increase in the number of loans we’re doing in 2025 against 2024, and we think it could go up to 28 percent.”

Dickson shares Petersen’s viewpoint when it comes to increasing interest rates. “I think our growth this year has to do with people getting comfortable with interest rates and understanding that this is just where we’re at,” he said. “People waiting for us to go back down to two or three percent forget that we were only there because we were in very difficult times as a country. Today, at our six percent, we’re much closer to the norm.”

Those who are serious buyers and small business owners, he said, continue to get their projects off the ground. “If you’ve had an idea for a while, if you’ve wanted to grow your business, I think you’re realizing that prices aren’t coming down, and now is the time to go for it,” he said.

Interest rates can also change depending on an entity’s sustainability record and goals. “We offer a lower rate if you’re more sustainable with your asset in its design,” he said.

Swain said PACE Equity sees companies that are working to achieve sustainable projects and will step in with their own internal engineers where needed.

“I’ve talked to every type of developer of every stripe, and almost universally, they said they want to learn more about it,” he said. “The interest is there, certainly in cities where people are determined to build sustainably.”

That’s the future of financing and development, Swain said. “Whether with a carrot or a stick, sponsors and folks at the city level, all the way up to the federal government, are going to enable a more sustainable, climate-friendly building environment,” he said.