Buyers grapple for commercial loans on Peninsula

Chico's Pizza in Seaview is for sale to the right buyer.

Chico’s Pizza in Seaview has seating for 160, a two-bedroom apartment upstairs and a reputation of nearly 50 years for tasty pizza. It’s yours for $850,000.

Kevin Bredfield, owner of Chico’s, had a couple interested in the restaurant. They had $350,000 down and were seeking a bank loan with Small Business Administration backing for the rest.

The bank was trying, he said, but SBA rejected the deal because the couple had no restaurant experience.

The SBA suggested he hire them on for two years to give them experience and then have them apply for the loan again.

“I asked if they would sign a paper guaranteeing they’d give them a loan in two years,” Bredfield said.

“Uh? Uh?” was the response.

He didn’t want to take the chance. He understands the caution but said it’s gone too far.

Bredfield’s had other people offer to pay small down payments with the agreement that he would carry a contract.

“I don’t have ‘Bank of Kevin’ stripped across my bald head,” he said.

Besides, there’s too much risk of a buyer running the restaurant for a few years, allowing things to deteriorate and then walking away, he added.

He could end up with a run-down restaurant and a battered reputation. He’s willing to hold out for the right buyer, even if that takes some time.

Carolyn Levno, owner and designated broker of ReMax Excellence in Long Beach has had several nibbles on Hilltop Lanes in Ilwaco, but none have been able to secure financing.

It’s an issue on the Peninsula, she said.

There is a lot of commercial property out there, some of it held by owners who have aged and want to get on with retirement, she said.

Financing for many prospective buyers is a problem.

“For the buyer, maybe the early retiree, maybe somebody who’s worked at one job and is ready for a second career — where are they going to get the money to buy whatever it is?” she asked.

Lots of people dream, but it’s hard to put the dream into reality, she said. “You basically have to find hard money … to do that.”

For most people, coming up with most or all of the money to buy the business is not an option, she added.

Leslie Brophy, owner and designated broker at Pacific Realty, said banks seem to be pushing for higher down payments, especially on restaurants and bars. She said a recent sale on a local bar fell through because the lender wanted 40 percent down.

It’s not that simple, said Dian Barker-Sayce, senior vice president and commercial banking center manager for Bank of the Pacific.

Commercial lending is the most interesting part of banking by far because it has the most variables, she said. That makes each loan unique depending on the borrower’s situation.

Experience plays a big role. Sometimes the borrower’s idea of experience is different than the bank’s.

Barker-Sayce said somebody who whips up a mean barbecue in the backyard is not necessarily qualified to run a restaurant. It’s a completely different thing, she said.

“To us lack of experience is a big red flag.”

The failure rate on taverns, bars and restaurants is quite high, she added. Most fail in the first two years.

The perishables involved tend to be costly because of waste. Then there’s providing good food, good service and ambiance.

People applying for a loan for these businesses already have a strike against them, she said.

Speaking specifically about the Peninsula, she said people often come to the Peninsula and find they like the lifestyle, but they need a job and sometimes try to buy one by getting a commercial loan.

They have to have the business plan, ability and collateral to back it up.

There’s also a lot that goes into considering the loans, she said.

Joe Schulte, president and chief executive officer of Clatsop Bank, agrees. Every situation is different, he said.

Banks consider how the borrower plans to repay the loan and the secondary plan for repayment if there’s a disruption, he said. They consider cash flow and assess the risk of repayment.

Property condition also factors in.

“The building is our collateral,” she said.

If the property is a steal that might be because of deferred maintenance. If you can get it for a song, there’s probably a reason, she said. Deferred maintenance is another red flag for lenders.

In response to criticism that banks are overly particular about lending, bankers say regulations add to the issue.

This is a heavily regulated industry, Schulte said. Lenders have to keep regulators and bank examiners in mind when making decisions.

There was a perception that banks were unwilling to loan money to businesses, he said.

“Our problem was people weren’t asking for them,” he said. “They weren’t looking to borrow money. With improvements in the economy, we’re seeing more demand.”

Construction and property developments drove much of the real estate bubble and burst and were poor performers during the economic downturn, so they were problematic for lenders, he said.

Barker-Sayce added, “Since the economy crashed in 2008 there’s been more scrutiny on loans, and that’s made things even more complicated.”

Despite the frustration, Levno understands.

“I don’t think they’re being overly cautious by any means,” she said. “I think they’re being responsible. When you take on a business, it’s a big endeavor.”

Large or small, a commercial property is big responsibility, she said. Proving to the lender that the buyer can get a return on the investment is justified.

Levno suggested alternative financing could be secured.

She envisions a local group that would make commercial loans available. The group would have to comply with lending requirements, but as an independent entity, it would have more flexibility.

“Let’s say 10 people put $20,000 in; that’s $200,000 they could loan to somebody to buy one of these buildings or support somebody in their dream of opening a barbecue,” Levno said. “And, yeah, they’re going to have to scrutinize them. They will have to go through lending regulations on their own…. But it wouldn’t have the strings that a federally backed commercial lender would have.”

She saw it in action when she worked in the Longview area. Business people helped others come up with money for commercial ventures.

Sellers and lenders are eager to put a positive spin on the situation. There’s a lot riding on it for both parties.

And despite the issues, banks stand ready to lend to qualified borrowers.

Bank of the Pacific stands ready to lend to qualified borrowers in Pacific and Clatsop counties, Barker-Sayce said.

“They know business and they know people,” she said. “They’ve been in the communities a long time.”

Schulte said Clatsop Bank is focused on small business and commercial lending, so “that’s right in our wheelhouse.”

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