How to Get Ethnic Grocery Store Financing with a 504 Loan

finance an ethnic grocery store with the 504 loan

With its many immigrant and ethnic communities, California epitomizes America’s cultural melting pot. Often these communities are anchored by grocery stores, which serve several purposes for their customers. Ethnic grocery stores may sell items seen as indispensable by the community, such as kosher or halal offerings, or imported goods available nowhere else. These local ethnic grocery stores may also be information centers, with bulletin boards presenting notices in its customers’ native language and offering books and magazines for sale along with groceries. They may even feature sit-down delis where community members can meet and sample authentic cuisine.  

For all of these reasons, ethnic grocery stores often have a stable market and a loyal customer base, as well as ample opportunities for expansion as the communities they serve grow or they discover underserved markets in other locations. Finding financing for expansion can be challenging for these business owners. However, ethnic grocery stores are ideal candidates for financing through a Small Business Administration (SBA) 504 loan.

Finding Financing for Ethnic Grocery Stores

The retail food market is in the midst of considerable reorganization, as customer preferences shift away from the supercenter and the traditional grocery store formats, according to Inmar Willard Bishop Analytic’s 2017 Future of Food Retailing report. While that report predicts only modest market growth through 2021 for small grocery stores (ethnic grocery stores fit in this category in the research), that is in line with the brick-and-mortar segment of the industry as a whole. Sales in U.S. grocery stores reached $1.2 trillion in 2016.

Small grocery stores often start off as the personal property of a single owner or a limited liability company (LLC), and are financed through the personal credit of a small circle of owners. Grocery stores are cash intensive businesses, due to the need to maintain an inventory of thousands of items and to store the items, many of which are perishable and require refrigeration, freezing or other special handling.

This ownership structure, combined with the cash flow challenges in the industry, can make it difficult to find the financing needed to purchase a building for a store. Banks see a high level of risk, and while there are alternative lenders like nonbank lenders and finance companies that target grocery stores, these generally offer higher interest rates for shorter terms.

Advantages of the SBA 504 Loan for Ethnic Grocery Store Owners

When attempting to finance an ethnic grocery store, it is beneficial to partner with a Certified Development Company (CDC), a nonprofit organization set up specifically to administer SBA loans for small business owners. Conventional lenders are much more willing to lend to clients in conjunction with a CDC, as it provides them with an extra level of security while the loan package offers some attractive benefits.

A 504 loan is a partnership between a conventional lender, a CDC and the borrower. The conventional lender covers at least 50% of the loan total, with conditions determined by that lender and the borrower. The conventional lender has first lien position on the loan, even though it provides only half the total. The CDC facilitates a separate SBA loan of 40% of the project total, up to $5 million ($5.5 million with the Green Energy Program), at a fixed, below-market rate. The borrower contributes a 10% down payment.

  • 50% Conventional lender
  • 40% CDC
  • 10% Borrower

A 504 loan can be used for:

  • the purchase of land or buildings
  • the construction or renovation of buildings
  • the purchase of equipment with a service life of ten years or more

This opens up opportunities for grocery store owners to build a brand new store or buy an existing building for your store. You can also finance any upgrades or renovations. In addition, you can lease up to 49% of the space in a building you buy and up to 40% of the space when you build from the ground up, allowing an opportunity for additional income

Ethnic Grocery Stores Flourish With 504 Loans

Koreana Plaza in Rancho Cordova is an example of the growth of an ethnic grocery business. TMC Financing client, Byong Joo Yu (BJ), was the owner of two grocery stores when he decided to buy a decrepit shopping center and fill it with gift shops, restaurants and a spa. Now, Koreana Plaza is a staple for locals and aficionados of Korean food, groceries and services. His total project cost was $17.2 million, and he created 87 new jobs and revitalized the neighborhood. It was Yu’s second 504 loan through TMC.

“TMC is very professional and they’re willing to take a risk,” Yu said. “They trusted me as a businessman and they were willing to help.” Since it opened, Koreana Plaza has added a cocktail lounge, karaoke bar, billiard hall and bakeries too.

The La Bonita supermarket is another example of an ethnic grocery store financed with a 504 loan. La Bonita was a single Hispanic supermarket in Las Vegas, NV with 300 employees when they applied for an SBA 504 loan through TMC in 2012. Since then, La Bonita has expanded to six locations and added over 245 employees to the staff, with more expansion plans in the works. They are hiring 200 more employees for their largest location yet, set to open at the beginning of 2018. La Bonita is also a fixture in local TV advertising.

Jaime and Sylvia Martinez opened the first La Bonita Grocery and Meat Market in 1991. The market was focused on providing specialty food products and meat cuts to the local Hispanic community. Jaime and Sylvia manage the day to day operations of the La Bonita Grocery Stores chain and in 2012, they came to TMC to finance their 5th location with an SBA 504 loan. TMC financed the acquisition of a 39,138 SF property and improvements for a total project cost of $4.2 million. The La Bonita markets are not just serving the local Hispanic community, but are also providing a vital service to the neighborhoods and communities in which they are thriving in.

The SBA Green Energy Program Can Help Ethnic Grocery Stores

The SBA Green Energy Program offers exceptional opportunities for grocers. Since grocery stores use large amounts of energy for lighting, air conditioning and refrigeration, they are ideal candidates for energy efficiency measures. The Green Energy Program, specially designed to encourage sustainability in small businesses, provides additional financing opportunities for projects that include these measures. When green efficiencies are implemented, the SBA per project maximum is increased to $5.5 million and multiple projects can be financed.  

There are three ways to qualify for the Green Energy Program:

  • Buy or construct a building that consumes 10% less energy than your current location
  • Buy the building you now lease and make upgrades to consume 10% less energy
  • Buy or construct a building that produces 10% of the energy it consumes or produces fuel to reduce fossil fuel consumption, using equipment financed through the loan

The Green Energy Program can help a grocer upgrade equipment as well as expand to new locations. Another possibility for a grocery store is solar power: Not only can this be financed through the Green Energy Program, it will result in a permanent, substantial utility savings once generation is underway.

The experts at TMC Financing can answer any questions you have about how you can purchase real estate for your ethnic grocery store business using 504 loans and help you begin the loan process. To find out more about the 504 loan and the opportunities it offers, contact TMC today.


Barbara Morrison, a local small business advocate and civic leader, founded her first company TMC Financing in 1981. TMC is a Certified Development Company that provides commercial real estate financing to small business owners via the SBA 504 Loan Program. TMC consistently ranks among the top certified development companies nationwide, and has funded projects worth more than $9 billion across California and Nevada. Nearly 5,000 small businesses have benefitted from this financing, resulting in the creation of an estimated 50,000 jobs. TMC is also the No.1 SBA 504 hotel lender in the United States. Barbara is also the founder of Working Solutions, a Bay Area microlender whose mission is to provide micro entrepreneurs, particularly low-income individuals, women and minorities, with the access to capital and resources they need to start a successful business.
Barbara Morrison