Alack Refrigeration - Hammond, Louisiana

It has been documented that before Hurricane Katrina there were approximately 800 restaurants in the Greater New Orleans area. To date there are now more than 1,000 area restaurants.

Alack Refrigeration has been part of this growth in supplying restaurant equipment to this burgeoning market sector. They are a food service contractor that provides culinary equipment and supplies to all levels of area eateries. Their clients include everyone from the corner po boy shop, to the white table cloth restaurant, to the finest hotels and other institutional customers. They supply the hospitality industry in southeastern Louisiana, Mississippi and Florida. Alack specifies, sells, and installs food service equipment including refrigeration equipment. They also have a retail outlet for kitchen supplies and utensils.

They used the SBA 504 loan to construct a two-story, 33,000 square foot building that includes warehouse and office space. They used 16,000 square feet to showcase the equipment about which chef's dream. It includes a working kitchen to help demonstrate the equipment and they offer cooking classes to the public.

DEAL STRUCTURE

Bank Portion: $1,600,000 first mortgage,
50% loan to value

Borrower Portion: $468,472
15% equity

RLC SBA 504: $1,600,000 second mortgage,
20 year fixed rate 5.8%

Total Project: $3,668,472.00

Jobs Created: 15 – Jobs Retained: 35

In addition to the credit risk advantages, a SBA 504 loan offers
the following advantages for your customer:
• Minimal Equity Requirement
• 20 year Fixed Rate on RLC portion.

Think OFFENSE!
When was the last time you talked about a 20- year fixed rate with one of your customers?

Historically, we all know the 504 product has been used as a credit enhancement. If the credit department was nervous about a deal, then you would make them feel better with the 50% LTV that the 504 product offers.

However, the 504 program has been under-used as part of pricing strategy. As bankers, we all wish we did not have several competitors on every deal. The reality is that it is the norm and not the exception.

In survey after survey, businesses have said that they are looking for something value-added in their banking relationship. They don’t want to hear about the same old products. They want to know “How can you save me money or make me money”? The 504 product has lots of value-added elements, such as:

Low-equity requirement. There is nothing more precious to any business than working capital. They never have enough. With only a 10% equity requirement for existing businesses, the 504 offers capital preservation. In addition, most fees (closings costs, appraisal fees, environmental fees and points) can be financed.

20-Year Fixed Rate. The interest rate on our 40% of the debt loan is fixed for up to twenty years. When was the last time you talked about a 20-year fixed rate with one of your customers?

Current Rate. The current note rate on 504’s is 5.4%. Adding in the servicing fees, the effective rate is 6.9%.

TO RECAP: Only a 10% equity requirement. Fixed rate for twenty years at 6.9%.

Do you think that would add value to a current relationship or get you in the door to a new client?