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Santa Cruz County Bank provides financial remedy for Front St. Inc. health center

May 12, 2011

Premium content from Silicon Valley / San Jose Business Journal - by Eli Segall

Date: Friday, April 29, 2011, 3:00am PDT - Last Modified: Thursday, April 28, 2011, 9:00pm PDT

After 20 years of trying to secure loans for her residential health care facilities, Ann Butler was able to help expand her business with an SBA loan through Santa Cruz County Bank.

Many small-business owners say it can be tough to get a loan — but for those who own residential care facilities, it can sometimes be impossible.

Ann Butler knows this firsthand.

The president and co-owner of Santa Cruz-based Front St. Inc., Butler spent 20 years as a client at Bank of America and said she never received a loan for her facilities, despite many applications and her company’s solid cash flow. The problem, she said, is that large banks shy away from lending to companies that live off government contracts, which can vary in size and must be spent in full.

Her former account manager at BofA, Chris Maffia, tried to secure financing for her, often to no avail. Butler said she received only a small line of credit at one point from the bank.

To grow her business, Butler said she refinanced her home seven times over a 10-year span to get cash.

Maffia joined Santa Cruz County Bank shortly after the lender’s 2004 opening and signed up Butler as a client. The switch ultimately helped Front St. expand.

Among other things, the bank got Butler $1.3 million in financing to demolish an aging building and construct Front St.’s new headquarters.

Santa Cruz County Bank provided $685,000 for the work, and the Small Business Administration provided $616,500 through its “504” program, said Sue Chandler, SBA department manager at the bank. SBA “504” loans are typically used for real estate purchases and property construction and upgrades.

Front St. moved in to the building last July.

“If it wasn’t for these community banks, I don’t (think) a lot of us would be able to do it,” Butler said.

Jefferson George, a spokesman for Charlotte, N.C.-based BofA, declined to comment on Front St. but said the bank lends to government-funded companies.

Front St. operates seven facilities in Santa Cruz and Monterey counties, and has 250 employees. Butler said it works with five Northern California counties and the federal government, and gets $7 million per year in contracts and supplemental security income for certain clients.

Rama Khalsa, health service director for Santa Cruz County, said Front St. provides skilled nursing, housing support and rehabilitation for the mentally ill, among other services.

Khalsa, who has worked in county mental health for about 26 years, said it’s difficult for government contractors that provide social services to get traditional business loans. These companies do not typically earn a profit, she said, and banks are wary of lending to them.

“Not all banks sign on for that sort of thing,” Khalsa said.

Still, Santa Cruz County Bank has proved a good fit for Butler. The lender has raised the value of its total loan portfolio every year since 2004, according to Federal Deposit Insurance Corp. data. Front St., for one, has received nearly $3.4 million worth of financing, according to the bank.

This includes $223,000 for solar panels and about $2.8 million worth of commercial real estate loans.

Butler’s SBA loan stemmed from her desire to consolidate back-office operations under one roof. Until last year, Front St.’s administrative staff was based in some office suites on two separate floors in a building in downtown Santa Cruz.

The company’s new headquarters was built on the site of a former grocery store, 7th Avenue Marketplace. Butler had purchased the grocery and its building in November 2004, largely as an investment. She brought in some friends to operate the grocery, but they ran it poorly and Butler closed the business in 2006.

She later decided to level the building and replace it with offices. Butler was approved for the SBA loan in November 2009, and construction lasted seven to eight months.

Human resources and other back-office jobs are in the new building.

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