With a well-timed SBA 504 loan, this Carribean food service company is continuing to grow and create opportunities.
By Bianca Gonzalez
Thanks to an SBA loan through Ponce Bank, Daniel Garcia, owner of the Caribbean food service company Salsa Caterers and Special Events, acquired an industrial building in the Bronx to expand his business after growing during the pandemic.
Salsa Caterers has been a staple of the Bronx since its start as a catering company in 1990. It eventually added two more business lines: Salsa Express, which is its corporate dining service, and daily prepared meal food services. Garcia was looking for a property to continue growing when COVID-19 struck and businesses began to close down.
Revenue from Salsa Caterers' corporate dining and catering services "dropped to basically zero," Garcia says. While the pandemic caused many local businesses to permanently close, Salsa Caterers managed to continue growing as a result of increased demand for prepared foods.
"In a downturn economy, the luxury side gets hit first," Garcia says. "The prepared-foods side, which is more contract business, has a much smaller profit margin. However, it's steady. In a downturn economy, it can save the day."
Salsa Caterers was already supplying prepared meals to shelters, senior centers and other community programs in the Bronx before the pandemic struck. After New York City's boroughs began quarantine, "the city needed prepared meals, and not-for-profits needed to continue to feed people across the city,” Garcia says. He also began preparing food for emergency first responders and quarantined residents. "It helped keep us going and we grew once again." Garcia also began to sell his specialty food online, but says they’re still learning how to invest in that new model.
After two years of searching, Garcia found a Bronx-based 20,000-square-foot building that was formerly a bakery. The larger space would allow them to grow from 10,000-20,000 meals a week to more than 10,000 meals a day.
In order to finance the acquisition of this property, Garcia, who is of Puerto Rican descent, turned to Ponce Bank in January 2021. The bank began in 1961 when a group of predominantly Puerto Rican community activists and business people started Ponce Bank as a mutual savings and loan association to meet the needs of their underserved borough.
"The Bronx was burning,” says Carlos Naudon, CEO of Ponce Bank. “Banks were closing. People were leaving. We were doing things that would fall under the labels MDI and CDFI before those labels existed."
Barbara Arroyo, Vice President of Ponce Bank, and other leaders at the CDFI worked with Garcia in order to successfully complete the SBA loan application process. "If you look at his financials, he did grow exponentially," Arroyo says. "However, he's doing business under a different way of operation than he's typically used to. From a banking or a credit facilitator point of view, it's all about risk and mitigating risk."
SBA’s most common loan program is the 7(a) program, which provides banks an SBA guarantee of up to 75% for loans over $150,000. Garcia would need to put in up to 25% equity.
Ponce Bank instead utilized the 504 program, a loan structure in which a community development corporation (CDC) typically provides 40% of the total project costs,a participating lender usually contributes 50% of the total project cost, and the borrower covers the remaining 10%.
Total project costs came out to $5.6 million. Ponce Bank, along with the Business Initiative Corporation of New York, a local CDC, contributed to Garcia’s total project costs through the 504 loan structure, allowing him to acquire the property by putting down 10% of the project costs.
"You're talking about freeing up almost a million dollars that Danny can use for renovations and hiring new employees who can oversee the expansion," Arroyo says.
In New York City, the recording tax fee for commercial mortgages over $500,000 is 2.8% based on the total project costs. This fee is waived for the amount contributed by the CDC, saving Danny thousands of dollars.
Part of what made this acquisition successful was the shared sense of community between Ponce Bank and Salsa Caterers. "I've met the president of the bank," Garcia says. "I can call a person who cares, who's from the community, who knew my history, knew my character, and advocated for us. You can't buy that."
This story is part of our series, CDFI Futures, which explores the community development finance industry through the lenses of equity, public policy and inclusive community development. The series is developed in partnership with Next City.