As rents soar, more small businesses turn to loan program to buy property

From Milpitas to San Francisco, a Small Business Administration loan program is helping local companies stay in the Bay Area

As posted on Mercury News

Facing soaring rents and property prices, hundreds of small businesses across the Bay Area have turned to a federal loan program in the last few years to keep a foothold in one of the nation’s most expensive real estate markets.

The U.S. Small Business Administration and its nonprofit partners help businesses across the country purchase property. But the impact of the loans they disperse is particularly acute in the Bay Area, where high and sometimes unpredictable overhead costs have forced long-time restaurants to shutter, prompted shop owners to close up and move, and made the already complicated job of expanding a business even more difficult.

Created in 1980, the SBA 504 Loan Program helps companies that can’t afford a conventional 20-30 percent down payment purchase space with as little as 10 percent down through a loan with a low, fixed interest rate. The aim is to help mom-and-pop shops — particularly those owned by women or minorities — thrive while also supporting and diversifying the local economy.

“I don’t know if I could’ve grown as fast as I’ve been able to,” said Linda Fong, who has run FastSigns in Oakland for a quarter century and purchased space near Laney College a couple of years ago with a SBA 504 loan.

Rather than funnel all her cash into buying property, she was able to put some of it toward purchasing new sign-making equipment. And she doesn’t have to worry about getting booted out of rented space every few years or the potential for losing clients as a consequence.

“Buying gives me a sense of security,” Fong said, adding that over the years she’s seen neighbors leave the city. “I wanted to stay in Oakland.”

SBA 504 loans, which can also be used for refinancing or to make improvements to property, typically cover about 40 percent of the total project cost while the business owner covers 10 percent and a bank like Chase or Wells Fargo covers the remaining 50 percent. The SBA’s rates are relatively low — currently 3.64 percent for a 25-year plan and 3.57 for a 20-year plan. For most projects, the SBA’s cap is $5 million, and businesses must have a tangible net worth of less than $15 million to qualify.

Kurt Chambliss is an executive vice president with TMC Financing, a nonprofit certified by the SBA that helped Fong get the loan.

“There’s a lot of small businesses getting priced out of being in the Bay Area because they can’t afford the rent,” Chambliss said, adding that when owners buy, they can stabilize some of their costs. “We’ve been super busy.”

In 2019, the SBA did 243 of the loans in the Bay Area, up from 219 in 2018 and 230 the year before. Many people, Chambliss said, don’t know the program exists or have misconceptions about it being a cumbersome process.

Fong had heard those rumors, too, she said, but they didn’t reflect her own experience.

“They made it so easy,” Fong said of TMC Financing.

Rob Walker, president of UpCycle and the fourth-generation San Francisco builder behind such spaces as the new Fort Point Beer Co. taproom in the Mission District and The Periodic Table sake bar in Emeryville, agreed. The loan meant not only ownership, he said, but a chance to lock in usable space in the Bayshore neighborhood.

With a price tag of nearly $2 million, Walker said, “we would not be able to do this” without the loan. “I started talking to everyone I knew about putting together some sort of investor group.”

Instead, he worked with TMC Financing through the 504 program.

“The prices of these buildings have gone up similar to the home prices. Some are doubling in five years,” Chambliss said.

And, Chambliss added, it’s getting harder to find industrial space for companies that manufacture products. San Jose, for instance, has moved to green light badly needed housing on some land that was zoned for industrial uses, leading to a shrinking supply of industrial land. And companies like Google have bought up large swaths of formerly industrial space near Diridon Station to build a new campus with offices and apartments.

“That’s the biggest issue I’ve found,” Chambliss, who has been with TMC Financing for a decade, said, referring to the fact that while his company can help with financing, finding buildings that work for small businesses is increasingly difficult.

Fong remembers when Oakland “was like a ghost town,” and parking was free. Now, buildings are being scooped up and the streets are more crowded.

“I’ve seen a lot of changes,” Fong said.

The SBA 504 loan program, she said, has allowed her to ride out those changes and continue to provide jobs to local residents and signs to local buyers.

“It’s the stability,” Fong said. “It builds the community better.”