Printer develops new perspective on loan process.

Before Rafael Garcia secured an SBA real estate loan, he thought the federal agency was made up of "legal gangsters" who would take his house after one missed payment.

But after borrowing nearly $500,000 through the SBA 504 loan program in a complex two-building purchase for his Santa Fe Springs printing business, Garcia did a 180-degree turn.

"They were completely flexible and accommodating, even though, on paper, we weren't that good of a bet," he said.

Garcia's father started Graphicom Digital in his Whittier garage in 1980. Rafael joined the firm in 1988, and has run it from rented space since 1996. Then early last year their landlord said they had to buy the building or vacate. Garcia found a new 14,000-square-foot building instead. His broker referred Garcia to Wells Fargo's SBA division for a 504 real estate loan, which offers businesses reasonable interest rates.

Wells Fargo funded 50 percent of the loan and took first position; the CDC Small Business Finance, a private company that generates capital via SBA guaranteed bonds on Wall Street, funded 40 percent. That left Garcia only having to pay 10 percent of the deal.

His SBA 504 loan was fully amortized for 20 years, with the property used as collateral. Garcia also took out an SBA 7(a) loan, which can be used for equipment purchases, to refinance his printing presses over 10 years, lowering his amortization to $22,000 from $60,000 per month under his old five-year loan.

"We opened escrow on the new building in February, and our lease on the old space was up in April," Garcia notes. "But due to construction delays, we couldn't move in for nearly a year."

During that time, the real estate market boomed, driving up the value of the deal by 70 percent. That prompted him to go back to the SBA and ask it direct the $250,000 portion of the 504 loan earmarked for his moving expenses into a new loan to buy his existing building.

"I gave my landlord a $50,000 non-refundable deposit to stay put, and opened escrow on my current location as well," says Garcia. "The new space became a warehouse, allowing us to speed up the mailing and fulfillment portion of our business."

Prior to getting SBA funding, Graphicom had suffered several years of marginal revenues; with its high-end equipment and low cash flow, Garcia says no commercial banks were interested. "The SBA's goal was to help us create long-term growth and job expansion. They looked at our 800 plus credit ratings, and didn't even care about the buildings' appreciation."

In fact, the SBA is so averse to having a 504 real estate loan used as speculation, Garcia made a gentlemen's agreement not to sell out.The market value of the company's two sites is now more than twice the amount of its SBA loans, but Garcia, who says his projections for the company are right on target one year after closing, wouldn't change a thing.

"With a commercial loan you live and die by the last three years of balance sheets. The SBA looks at the overall business and where they know you'll be," he said. "I'd do the same loan with the same people all over again."

BY DAVID GEFFNER

Contributing Reporter