Tire retailer gets on a roll with help of SBA real-estate loans.

By any measure, Sun Tire and Automotive Services is a successful business. Owner Dick Erickson has grown the retail fire and auto-repair chain from one store to 10, with eight locations in Jacksonville and two in Tallahassee, Fla. Business is booming, and Sun Tire now boasts annual revenue of $13 million.

But as Erickson will admit, despite hard work and good ideas, this success story would never have happened without help from a Small Business Administration loan program.

Erickson was confident about starting his own business 25 years ago. The decorated Vietnam veteran knew the tire trade inside-out and had a well-defined vision of how he could do it better.

After 13 months as a Marine Corps officer and helicopter pilot flying more than 340 combat missions, Erickson had returned home and earned a finance degree from North Dakota State University. When he and his wife, Diane, moved to her hometown of Pensacola, Fla., in the 1970's, he began his career in the tire industry.

"I learned my wares and had tenure with a fairly large company," says Erickson, owner and president of Sun Tire. "But I thought that maybe I had some ideas that I wanted to implement, and basically the only way to do that was to start my own company."

Erickson knew a combination of proactive customer service and fair dealing would succeed.

In 1981, he opened his first Sun Tire in Orange Park, Fla., with a lease-to-own agreement. He had the know-how, but not the cash.

"I came to town with $100,000 in my pocket and thought I could get into the tire business," he says. "But little did I know what it was actually going to cost me, the land and the building, plus equipment, plus inventory, plus operating capital."

For Sun Tire to succeed, Erickson knew it needed to grow. He also knew he wanted to own the buildings and land at his retail centers. "You can pay that money to someone else or pay it to yourself," he says.

He tried to get a traditional loan to open a second store, but his bank turned him down.

That's when Erickson discovered the SBA's Certified Development Company 504 loan program. A CDC is a nonprofit corporation that works with the SBA and private lenders to provide financing to small businesses, with the goal of improving economic development within a community. Each of the 270 CDCs around the country covers a specific geographic area.

The 504 loan program helps businesses buy major fixed assets such as land, buildings or equipment.

"Many business were hampered by the additional cost of having to lease or rent a building in order to house their operation, while not having the flexibility to make decisions as they grew, for instance if they wanted to renovate or expand on the property, because the building wasn't theirs," says SBA North Florida District Director Wilfredo Gonzalez.

Loans through the 504 program are long-term, with attractive rates. "It's hard to go through a bank and get such low, fixed-rate financing for 20 years," says Cleve Warren, president of the Jacksonville Economic Development Company, an SBA CDC. "That's the beauty of the 504 program."

A 504 loan combines a mortgage from a traditional lender (usually half the total sum borrowed) with a second loan (40%) from the CDC. The business kicks in the rest.

"The most important point from the business owner's position is that they can limit the amount of the down payment they're putting in, leveraging that precious working capital," says Joe Whitaker, who worked with JEDCO when Sun Tire received its loans. "It's important for businesspeople to know that if you are profitable and want to expand, you have the ability to use the SBA program to help leverage your very valuable cash resources."

Sun Tire has used the program five times in the past 20 years. The first three loans were made under the 503 program, the predecessor to the current program.

Erickson's first loan, $105,000 used to open the second store, was approved in January 1983. Before the year ended, he opened a third store with the help of a $120,000 loan.

Loans of $155,000 in 1985, $211,000 in 1995 and $212,000 in 1997 fueled Sun Tire's expansion. All of Erickson's 504 loans were 20-year loans with below-market interest rates. He paid some off on schedule and consolidated the last few as Sun Tire grew more profitable.

"It's a very successful program," says Gonzalez. "In our district office, we've been going gangbusters on 504s."

Because the 504 program is an economic development tool, loans can be awarded based on job creation or retention, with a typical goal of at least one job per $50,000 borrowed, as well as other criteria such as revitalization of an area's economy, or whether the business will serve as a catalyst for development in the area.

Sun Tire now employs more than 90 people at its 10 locations, and no longer needs SBA assistance when opening a store. The chain opened its three most recent locations without SBA loans.

"As I built up equity in my real estate (holdings), then I had something to talk to the bank about," says Erickson. "I wouldn't have gotten to that point if I hadn't built a real estate portfolio beginning with the 504 program."

The tire chain enjoys annual revenue growth of 570 to 670 and is considering more expansion. Says Erickson, "Jacksonville is probably a 12-store market and we have eight; Tallahassee could support four stores, and we have two over there.

"And if you start looking at Gainesville, St. Augustine, Fernandina, we think we could double the size of the company and keep all distribution and support in Jacksonville."

SUN TIRE & AUTOMOTIVE SERVICES, INC 

6807 Stuart Lane South, Jacksonville, FL 32254

[phone]

www.suntire.com

Founded: 1981

Employees: 90

2005 revenue: $13 million