Rising rents in the Bay Area have a monumental impact on small businesses and this is particularly true for the restaurant industry. The solution? Buy the space instead.
Many restaurant owners think that buying a building is an undertaking out of their reach but with the Small Business Administration (SBA) 504 Program, property ownership is possible and can help your future (and the future of your restaurant) tremendously.
The SBA created the 504 Program specifically for small business owners. Recognizing that small businesses are the backbone of our economy, it was clear that a loan program to provide affordable financing was necessary. The 504 Program provides 90% financing to small business owners purchasing real estate or equipment for their business. The terms are as favorable as they come – a low down payment combined with a below market rate, fixed and fully amortized for 25 years. No additional collateral is required and there is no limit to the project size.
Opening a restaurant is an expensive proposition. Between, design, tenant improvements, construction, permits, equipment, it can cost anywhere from $200,000 to millions to open a restaurant. A restaurant owner in Hayes Valley details the $700,000 that went into opening his restaurant, including the blood, sweat and tears that accompanied it.
Own the Restaurant? Own the Building
When you invest so much into a space – put yourself in a position where you will benefit from those improvements. When restaurant owners rent space and make significant upgrades – it is the landlord that will ultimately prosper. Building ownership allows you to benefit from those upgrades. You will also benefit from the building’s appreciation over time.
In addition, taking control of your occupancy costs will give you peace of mind. When you own your building, you know what your monthly occupancy costs are. You can focus on your business rather than worrying about increasing lease rates or potentially getting priced out of your space.
Finance Restaurant Equipment with an SBA 504 Loan
According to Restaurant Engine, outfitting the kitchen and buying equipment is one of the biggest ways startup restaurants typically overspend.
With the SBA 504 Loan, in addition to building acquisition, you can finance the equipment you need, as long as it has a service life of at least 10 years and keep more cash in your pocket. A properly equipped kitchen is a restaurant essential. Having an affordable financing option gives you the means to accomplish that.
504 Loan Comes with a Support Team
The 504 loan is administered by a Certified Development Company (CDC) such as TMC Financing. A CDC is a nonprofit organization built to support economic development within its community through the SBA’s 504 loan program. CDCs guide borrowers through the entire loan process and act as the borrower’s advocate throughout the life of the loan.
CDCs can provide a prequalification analysis to restaurant owners so they know their purchasing power and can act fast when they find the right opportunity. A prequalification letter can give you a leg up over other offers. In the competitive Bay Area market, this can make or break a deal. TMC can complete a letter within 48 hours.
Bay Area Restaurateurs Thriving with 504 Loan
TMC Financing has worked with many restaurants around the Bay who have realized that owning space is the way to go, including Piadina, Plow, Sam’s Café, Slanted Door, and 4505 Meats.
4505 Meats is a popular BBQ joint in San Francisco known for serving the highest quality BBQ from animals raised humanely and with care. 4505 has been a success in San Francisco (voted best burger in the bay AND Anthony Bourdain approved) but owner, Ryan Farr, wanted to expand his reach to the east bay. Farr connected with TMC Financing to see how we could help him achieve this undertaking.
Farr is all about the beloved old school spots. His first location in San Francisco is the former Brother-in-Law’s BBQ and the Oakland location that he fell in love with is the classic Glenn’s Hot Dogs.
TMC financed the building acquisition in addition to the $1,000,000 in tenant improvements. Farr was able to take on this incredible project with only a 10% down payment and a below market, long term interest rate.
“With an SBA 504 real estate loan, you get a fixed-rate loan, with just 10 percent down. Unlike renting, buying your space will assure your monthly payment doesn’t change, providing stability and peace of mind. What’s more, owning your own building allows you to build equity and fund your retirement,” explains Kurt Chambliss, Executive Vice President of TMC Financing.
Learn More
You can find out more about the loan program for your restaurant from one of TMC Financing’s 504 loan experts. TMC is an SBA Premier Certified Lender and has funded projects worth more than $9 billion across California and Nevada, resulting in the creation of an estimated 60,000 jobs. They have worked with restaurant owners and business leaders for over 35 years. TMC can help you find the financing that is best to purchase a building or equipment for your restaurant. For more information about SBA 504 loans, contact a TMC Financing Loan Expert.