A popular San Jose food vendor is trying to set up a brick-and-mortar restaurant, but has struggled to get a small business loan from a traditional lender.
The owner of Hết Sẩy has found an innovative solution to pay for a more permanent location: an online crowdfunding marketplace with a unique twist for small businesses known as SMBX. It comes at a time when San Jose restaurateurs have struggled as labor costs continue to rise and the threat of additional regulations and the ongoing effects of the COVID-19 pandemic persist.
The platform helped DuyAn Le, owner of the food pop-up, raise $124,000 in less than a month, a story of success that raises hope for small businesses looking for a path to growth or sustainability.
“It feels amazing,” Le told San José Spotlight. “People believe in us.”
The SMBX platform gives small businesses a way to offer bonds to individuals with a starting minimum investment of $10. The individual gets back the initial investment over the life of the bond and receives monthly interest on the investment.
The couple heard about SMBX through a friend, and then analyzed their business sales from the past two years to see what fundraising terms would work for them.
Through the SMBX site, Hết Sẩy is able to sell customers and other individuals three-year bonds at 10% interest, paying principal and interest monthly. The restaurateurs originally set a goal of $75,000 and then increased the offer to $124,000, Hieu Le said.
The couple launched their bond sale on March 9 and hit their goal by April 5.
Looking for a solution
Hieu Le, DuyAn’s husband, said his wife turned to San Francisco-based SMBX after exploring more traditional fundraising options. Le approached commercial banks to see if she could get a small business loan to set up a fixed retail location, but the financial requirements were too great, he said.
“It was just so much paperwork and things that are beyond what we are doing,” he told San José Spotlight. “We’re a young business, we didn’t have the capital to even look for that.”
Eddie Truong, co-founder of the Silicon Valley Restaurant Association, said he’s not surprised that DuyAn and Hieu Le pursued an untraditional form of fundraising for their business. Restaurants generally face a high rate of failure, and banks tend to be wary of the risk, he said.
“Lenders are not generally as open to financing first-time restaurant business owners,” Truong told San José Spotlight. “This is what we often see when minority and first-generation restaurant owners can’t get financing through traditional capital markets.”
Truong himself is starting a franchise restaurant with his brother, and said they’ve also had trouble securing financing through commercial banks.
“If you are trying to start a restaurant for the first time, these nontraditional forms of financing can be very attractive,” Truong said. “I think finding reliable financing will help alleviate some of the cost-of-living pressures that restaurants face in the valley.”
Peter Barden, a spokesperson for SMBX, credits Hết Sẩy’s strong local following and “belovability factor” as some of the reasons the couple was able to raise funds so quickly. Although the couple operates as a pop-up food stand, it’s been rated as one of the best Vietnamese restaurants in the Bay Area.
“They’ve been one of our faster raises,” Barden told San José Spotlight. “They worked really hard, and they have a compelling story and an interesting business, loyal customers, and they’re passionate about what they’re doing.”
But it’s a tough road for minority business owners, who don’t have access to the same capital resources as white business owners, said Reginald Swilley, partner at the Silicon Valley Minority Business Consortium.
“We don’t have access to the dollars that many of the majority companies have,” Swilley told San José Spotlight. “In capitalism, you have to have access to dollars in order for your business to grow and to flourish.”
In order to fix this inequity, business lending institutions should enact special policies to ensure small businesses have fair access, he said.
“The guys that have the money, that have the access, they’re going to keep it,” Swilley said. “It helps the local economy to have other people at the table, rather than just the good old boys.”
Contact Sonya Herrera at [email protected] or follow @SMHsoftware on Twitter.
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