SBA 504 Restaurant Feasibility Study in California

First in the nation for 504 restaurants

California ranks first among states for SBA 504 full-service restaurant loans by number of loans, and restaurants rank 2 of 39 within California's asset classes. Between FY2017 and FY2026 the program approved 408 loans worth $410.0 million in gross dollars. The structure of the loan matters here: the 504 program pairs a bank loan with a certified development company loan to finance real estate and heavy equipment, so the loan is tied to the property the restaurant occupies. Borrowing at the median reaches $782,500, 1.29x the 504 norm for the class nationwide, and a middle band stretches from $523,250 to $1.3 million. Franchising accounts for 6.4% of loans.

Development companies behind the loans

The Mortgage Capital Development Corporation has 97 loans worth $106.0 million. California Statewide Certified Development Corporation has 70 worth $68.9 million, Business Finance Capital 64 worth $74.8 million, CDC Small Business Finance Corp. 44 worth $41.1 million and Bay Area Employment Development Company 23 worth $19.3 million. SBA's tables list development companies as they hold or held each loan today. Los Angeles County has 81 loans, Riverside 34, San Diego 30, San Francisco 28 and Alameda 26. Volume rose from 21 loans in FY2021 to 74 in FY2023 and has been 49 in FY2025 and 51 in FY2026.

Cancellations and losses

Cancellation after approval reached at least 11.7% of FY2017 to FY2024 approvals, but it climbs to 16.6% when loans that never received money are treated as cancelled, a wide gap between the two figures. Charge-offs among the 129 loans that had funded by FY2021 stand at 1.6% and 0.78% inside the first five years, and neither is final.

What a California 504 study must prove

Because the loan finances property, the study should treat the restaurant as a real estate investment as well as a business. It should test the purchase price or construction cost against comparable sales, entitlement and permit risk, the lease-back or owner-occupancy plan, and the equity the borrower must contribute. The operating tests still apply: covers, sales per square foot, rent equivalent and labour cost. Payment coverage must be shown on the combined payments of both loans, with a slow first year, and an appraisal of the real estate will be required, so the study should be consistent with the likely appraised value.