A rule on certain federal SBA loans that caps borrowing at $5.5 million per person left fast food entrepreneur Dave Koch with indigestion earlier this year.
The lending ceiling would prevent Koch, pronounced “cook,” from meeting his fast-growth goals with Culver's, a Wisconsin-based chain of burger and frozen custard restaurants. But Koch discovered an antidote to the loan cap problem that comes, somewhat surprisingly, in the form of solar energy.
It's called the Green SBA 504 loan. It stipulates that SBA lending caps can go from $5.5 million per borrower to $5.5 million per project if the project generates renewable energy equal to 10% of its total consumption.
The rule meant Koch could borrow more than $15 million in his quest to open three Culver's locations in Sarasota — instead of just $5.5 million. It's a significant shift for Koch because his strategy is to move fast and sign deals for more Sarasota area stores before the parent company opens the territory to other franchisees. Each Culver's requires at least $2.8 million in financing, which includes land, construction and equipment.
“I'm not a left-winger or anything,” says Koch when it comes to so-called green business concepts. “But if you could create a little bit of extra energy and do something positive with it, then why not do it?”
Koch worked with Tom Wallace, president of the Fort Myers office of IDS Corp., on the loans. IDS is an independent nonprofit organization, authorized by the SBA to help borrowers navigate the lending process. It was Wallace who convinced a skeptical Koch the Green SBA 504 loan was legitimate. Koch says he thought it might be “snake-oil” when he first heard about it.
Koch achieved 10% renewable energy at his first Sarasota Culver's location, which opened this summer on University Parkway near the Sarasota Bradenton International Airport, by putting solar panels on the roof and canopy. The panels added around $90,000 to the total cost of construction, he says. Laura Hobart, who co-owns the store with Koch, says multiple customers have left positive comments about the solar panels.
Three other businesses in Florida, including two in Tampa, recently obtained Green SBA 504 loans through Wallace's IDS office. The list includes a developer group that recently bought a Hampton Inn in Rocky Point, near Tampa International Airport. Wallace says these loans are “profoundly effective” for an entrepreneur with the gumption and resourcefulness to seize the opportunity quickly. The loans also have better rates and require less equity than traditional bank loans.
“It's not used nearly as much as it could or should be,” says Wallace. “It's a fabulous tool.”
Koch gets it. A retired CPA, Koch and his son Aaron Koch own seven Culver's locations in and around Rockford, Ill. Prairie du Sac, Wis.-based based Culver's is known for its ButterBurgers and made-fresh-daily frozen custard.
The Kochs, Culver's franchisees for a decade, aim for two more Sarasota openings in 2015 and up to six or seven within a few years. The average Culver's, says Koch, posts about $2 million a year in sales. He thinks the University location can do about $2.5 million a year, given its location and demographics.
“I could see Sarasota being the next Rockford” for Culver's market share, Koch says. “We approached this market with that in mind.”
Follow Mark Gordon on Twitter @markigordon