SBA 504 Grocery Store Feasibility Study

Grocery 504 loans run large

Grocers took 488 SBA 504 loans from FY2017 to FY2026, totalling $631.7 million. At $846,000, the median loan is this cell's distinctive measure. It runs far above the grocery median across both SBA programs and stands apart from the 504 program's own median as well. Half of the loans sit between $437,250 and $1.6 million. Those are the sizes of a store building with its refrigeration and fixtures, the long-life assets 504 is built to finance, rather than inventory or working capital, which a grocer has to fund some other way.

The record is steady rather than cyclical. Approvals ranged from 28 in FY2018 to 72 in FY2021, and dollars reached $90.6 million in FY2022 and $83.3 million in FY2026, on 46 loans. Franchised stores are 4.7% of loans; the typical borrower runs an independent store. The Mortgage Capital Development Corporation leads on count with 33 loans and $46.9 million, but Florida First Capital Finance Corporation, Inc. leads on dollars with $63.8 million from 27 loans. Empire State Certified Development Corporation and Business Finance Capital have 24 each, at $45.9 million and $30.7 million, and WBD, Inc. has 22 for $21.0 million. California is far ahead of the other states with 112 loans; Florida has 37, New York 27, Wisconsin 24 and Puerto Rico 22.

Floors: fallout, but no recorded losses

Cancellation after approval runs at 13.3% or more among grocery loans approved in FY2017 to FY2024; add the undisbursed loans and the ceiling is 20.0%; the wide gap means a good part of recent approvals were still waiting to fund. Not a single grocery loan among the 191 disbursed in FY2017 to FY2021 has gone to charge-off yet: 0.00%, and 0.00% inside five years. Both rates are floors, and a store opened late in the period has had less time to show trouble.

What a grocery study must test

Nothing in the class definition limits this record. Grocery is a thin-margin business, so a feasibility study for a 504 grocery project has to test demand through the trade area's households, their spending and the distance to competing supermarkets, discounters and club stores; cost for the building, the refrigeration and the energy to run it; debt service coverage at margins the operator has actually achieved, since a small shortfall in sales falls hard on cash flow; and the appraisal, where a store building's value depends on reuse by another grocer or a general retailer if this one leaves.