Kay Lewis and her business partners were all ready to buy the historic Wagner House in Placentia and convert it into a "lovely, charming" tearoom and gift shop, when the Small Business Administration dropped a bombshell.
The group was counting on a $730,000 loan to buy the graceful Georgian colonial mansion on Yorba Linda Boulevard. The loan had been approved by International City Bank in Long Beach, subject to SBA guarantee. But the SBA is backed up with too many requests for loan guarantees and not enough money to meet them. So, the Wagner House is in limbo.
"On Friday, we were expecting to close escrow," Lewis said. "On Thursday, late in the afternoon, the bank called and told me that the SBA had stopped funding loans, that there was an impasse, that the SBA was having difficulty with the numbers of loans being processed, particularly in Orange County."
What Lewis found out the painful and potentially expensive way is that, for the first time since the early 1980s, demand for SBA loan guarantees is far exceeding the amount available, particularly in California.
Backlog of $4.4 Million
The result is a backlog of $4.4 million in Orange County and nearby areas. SBA officials said that between now and next October, they will be unable to guarantee as much as $500 million worth of loan requests nationally.
What happened is that the SBA recently raised its loan guarantee limit from $500,000 to $750,000, and sent entrepreneurs flocking to fill out forms for financial assistance.
"We've been making a substantial number of loans at the new increased maximum," said Steve Waddell, Orange County SBA branch manager. "We do have, in this office--and I think every office in this region--a substantial backlog of loans that have been approved on a credit basis but which we cannot fund due to lack of guarantee authority."
And where does this leave Kay Lewis and partners Loa Stephenson and Georgia Klinkers? Potentially out of luck, their $1.1-million project on terminal hold, their proposed catalogue in limbo, the upcoming Mother's Day buying season approaching too fast for them--all because the SBA impasse caused them to miss the escrow deadline to buy the Wagner House.
If the SBA cannot guarantee Lewis' loan, said Cort Hauge, senior vice president of International City Bank, "it doesn't go."
Location Picked for a Purpose
"We thought we had a solid project," Lewis said. "We're putting up over a quarter of a million (dollars) on this project in cash. We've also got firm real property in Orange County to guarantee the package."
If this teahouse is so important to Lewis and associates, why can't they just move their idea into a new house, or a strip mall, or a shopping center? That is a long story, one of small business and serendipity. And it started on April 15, 1987.
Now, most of us know April 15 as an IRS day of reckoning--ominous, expensive, tense. But for Lewis, Stephenson and Klinkers, it was momentous in a different sense. On that day, the three women rented a motel room in Buena Park, locked the door and turned off the telephone.
"It was a major brainstorming session," Lewis said. "No telephones, no kids, no family, no nothing. We would come up with a business plan."
The three spent eight hours in that tiny room, and when they finished, they had the elements of a plan: They would open up a serene, service-oriented sort of establishment, with a gift shop, a flower shop and a teahouse to serve luncheon and high tea. The house would have to be old, charming, sturdy, on a main thoroughfare and in an upscale area.
When they emerged from their seclusion, they called their real estate agent, who took them to the Wagner House just hours later.
"It was miraculous," Lewis said. "It was identical (to the plan). It was all almost a perfect match. It was too expensive."
When the three women finally got up their nerve to buy it anyway, it was in escrow.
"But we thought, 'This is the perfect house for us, and we'll wait until it falls out of escrow,' " Lewis recalled. "Six months later, it did. We knew it would."
Their luck held for a year, through remodeling plans and City Council hearings, Planning Commission meetings and sessions with the Health Department. Because there are only between 25 and 30 such historical homes left in Placentia, the city government bent over backward to find ways to keep them pristine and economically viable at the same time.
"We have been trying to find creative ways to use these older homes," said Jack Slota, Placentia's assistant city administrator. "Many are in residential areas, and neighbors are concerned. This appears to be a good use. . . . Not only our city council but our historical committee reviewed the plans and were enthusiastic."
But enthusiasm is not enough, as Lewis, Stephenson and Klinkers well know. Without the SBA guarantee, their business is a bust. And right now, nothing is certain.
"We just got caught in this one big snafu that's never happened before," Lewis said. "We're at the wrong part of the line. We're in limbo completely."