SBA 504 Quick Service Restaurant Feasibility Study in California

The nation's first-ranked 504 market for the class

California leads the country in SBA 504 loans for limited-service restaurants, the fixed-asset program that sits beside a conventional loan. The files for FY2017 to FY2026 hold 183 loans and $136.7 million gross, the state ranks 1 on loan count, and the class is 8 of 39 in California's own order. Nothing in this cell is flagged as distinctive, so the numbers set a baseline. The median loan is $663,000, 1.04x the national 504 median, and typical loans range from $383,000 to $1.0 million. Franchise brands hold 23.5%. These are loans for restaurants that own or are buying their buildings, a different profile from the 7(a) quick-service loans.

Development companies and counties

The Mortgage Capital Development Corporation has 45 loans worth $38.8 million. Business Finance Capital has 24 worth $17.9 million, CDC Small Business Finance Corp. 23 worth $17.0 million, California Statewide Certified Development Corporation 23 worth $16.5 million and Bay Area Employment Development Company 19 worth $14.4 million. The table lists SBA's holder records, not company practices. Los Angeles County has 46 loans, well ahead of Riverside with 12, Alameda and Orange with 11 each, San Diego 10, San Bernardino 9, San Francisco 8, Santa Clara 7, Kern 6 and Contra Costa 5. Volume rose from 7 in FY2017 to 28 in FY2022, and was 22 in FY2026.

Loss and cancellation picture

The cancellation floor is 11.1% for FY2017 to FY2024 approvals, rising to 16.3% once undisbursed loans are counted as cancelled. Charge-offs among the 57 loans funded from FY2017 to FY2021 sit at 0.00%, both to date and at five years. A cohort that small, with open loans, makes that figure a minimum only.

What a California quick-service study under 504 has to test

The 504 route suggests the operator owns the building, so the study has to value a property and a business at once. For the property, check zoning for drive-through use, traffic access, parking and the cost of land, and have the appraisal consider alternative uses if the concept fails. For the business, estimate sales at comparable sites, what share goes to franchise royalties if there is a brand, and the labor costs that California wages impose. Tally rival quick-service brands nearby and the traffic passing at meal times. Cost lines should be set beside the $663,000 median and separate land, construction, equipment and opening capital. Show coverage in a weaker year, with wages up and sales below plan. Entitlement and permitting time should be built into the schedule.