The failure of Medford Market at the Hubbard's Ace hardware location, among other things, was due to lack of money or third-party financing on equipment, trade fixtures and other expenses to open a new business called Medford Market.
It is understood that the more than 1,500 members are a "consumer co-op," and it appears that they could not get third-party financing or enough money to open the door. So the alternative is to find the available third-party financing and maybe work backward to get such funds or financing.
As a commercial real estate specialist, I arranged the two-hour meeting between Phil Eng and Joe Cowles of Evergreen Community Development, Dolores Harold, a Small Businesss Administration specialist for Key Bank and the Medford Market board to explore SBA 504 and 7a loans.
SBA 504 loans consist of half of the total loan from the bank and the remainder from bonds sold by SBA, guaranteed by the U.S. government. The purpose of such loans is to create jobs and stimulate economic growth. The borrower, usually the small business owner(s), put up a 10 percent to 25 percent down-payment of the project cost. The SBA 7a loan is for payroll, inventory and other miscellaneous expenses. Both SBA and the bank have strict guidelines for making such loans, which include but are not limited to the borrowers having sound financial statements, the loans being secured in first and second position against the real property that the business owns and the borrower(s) personally guaranteeing the loan. Are the 1,500 members of Medford Market willing and able to personally guarantee the loan, and is each qualified to be a borrower?
Medford Market's current business model includes borrowing funds of approximately six to seven figures. If the location is not previously used as a grocery store, the equipment cost, trade fixtures, store infrastructure and other startup costs amount to a few hundred thousand dollars, plus user/tenant improvement costs which can be incurred by the landlord or property owner, if Medford Market is the property owner.
To qualify for an SBA 504/7a loan, the market must be a "producer co-op" where the borrowers are the farmers, suppliers, vendors, manufacturers and the like with sound financial statements, and they may have to personally guarantee the loan. That means Medford Market has to own the real property and leasing is out of the question. The loan program allows up to 20 percent of the borrowing entity to be a "consumer co-op."
Ashland Food Co-op's annual report shows 2007 annual gross revenue (www.ashlandfood.coop) of more than $20 million. Medford Market should achieve half of that or less in a few years. At that time the loans would have been paid off and Medford Market can be restructured to be 50 percent producers and 50 percent consumers or even a 100 percent consumer co-op. It appears, in this current credit crisis, that there is no third-party financing out there for a consumer co-op unless it is self-funded. In such case Medford Market may not be necessary — just a "Medford Buyers' Club".
— Sam Fung