Michelle McLeod and her husband, Michael, found a property they thought would be a good addition to their growing business, which sells rocks and other landscape material.
The Escondido plot was just off state Route 78 and big enough — two acres — for a warehouse and more than two dozen bulk bins of everything from decomposed granite to pebbles.
But the down payment required to get a traditional bank loan would have tied up too much of the small business’s cash in real estate. When it comes to the material the company sells, “when the time is right, you need to be able to buy,” Michelle McLeod said.
It’s that kind of scenario that makes the loans the U.S. Small Business Administration offer a boon for companies like McLeod’s looking to grow.
The McLeods started Southwest Boulder, later renamed Southwest Boulder & Stone Inc., in 1989.
More than 25 years later, the Fallbrook-based company has six locations and more than 100 employees. The couple’s son and daughter work alongside them as they continue to grow the business.
$220M for S.D. District
Last year, Southwest Boulder was among 80 companies in San Diego County that were approved for financing from the SBA’s 504 Loan Program, an initiative to provide long-term, fixed-rate financing to growing businesses for assets such as land and buildings.
The SBA doesn’t lend directly to small businesses. The agency issues guarantees to banks and other lenders who make the loans to lessen their risk.
According to the latest SBA data, between Oct. 1, 2015, and Sept. 30, the total amount of financing approved for companies in the agency’s San Diego District was $220 million. (The district as defined by the SBA includes Imperial County; two of the 82 companies approved for financing were in Imperial.)
San Diego-based CDC Small Business Finance Corp. originated more than half of all the loans approved in the San Diego District in the last fiscal year. Other organizations that did so, too, include Southland Economic Development Corp., Capital Access Group, TMC Financing and Pacific West Certified Development.
Financing Amount Up 21%
While the data shows the number of loans fell, from 92 in fiscal year 2015 to 82 in fiscal year 2016, the total financing approved rose 21 percent, from $181 million to $220 million.
Merri Adams, a commercial loan officer with CDC Small Business Finance Corp., a not-for-profit SBA lender, originated Southwest Boulder’s $1.9 million loan.
Southwest Boulder’s SBA loan facilitated its recent expansion to its newest location, in Escondido.
Adams said banks typically require a down payment of about 25 percent of the purchase price.
“That’s a lot of capital for a small business owner to put into real estate,” she said. “They need their money for growing the business.”
The 504 program allows the recipient to put down 10 percent for a 20-year, fixed-rate loan. At the moment, the rate, which changes monthly, is about 4 percent.
The reduced down payment means Southwest Boulder can use the money it is saving to buy inventory, equipment and for other day-to-day business needed.
“For small and medium-size businesses, it’s all about cash flow,” Michelle McLeod said. “Everything we have goes back into the business.”
That includes buying boulders and stone for their rock yards, some of which can only be bought at certain times of the year.
Using Projections
Adams said the program is effective for small businesses because it takes into account companies’ most recent financials — and uses projections to determine the riskiness of the loan.
That last part can really help business owners looking to grow, she said.
“In an expansion transaction, like what Michelle did, the company might not have the financial results to support the debt, but by opening another location they’ll be bringing in another revenue stream,” she said. “They’ll take those things into consideration that a bank normally wouldn’t do on its own.”
McLeod said it’s often difficult to measure the true value of a mom-and-pop company by looking solely at its financials. The reputation Southwest Boulder has built up over the years, for example, doesn’t fit into any column on the chief financial officer’s spreadsheets.
Getting the OK for the loan through the SBA program “made us feel like we were a success,” she said. “I’d do it again in a heartbeat.”
SOUTHWEST BOULDER & STONE INC.
Founded: 1989
CEO: Michelle McLeod
Corporate headquarters: Fallbrook
No. of local employees: 105
Locations: 6
