‘Cupcake Wars’ champion conquers battle of finding affordable business financing, thanks to Cal Southern’s state guarantee

With a petite frame and sparkling smile, Audrey Hermes may not look like your typical warrior. But she’s actually fought in the trenches of many on- and off-screen “wars” throughout her career as a self-trained baker and entrepreneur.

Hermes first lost then a year later, won a championship title on the popular Food Network show “Cupcake Wars.” Fueled by that win, she launched her own cupcake enterprise in San Diego, Frost Me Gourmet.

Her next major battle would be finding a business loan to expand her cupcake operation to a third location. “I talked to multiple banks about (conventional) financing for all the tenant improvements we needed to do,” she said. “I was turned down multiple times.”

Hermes overcame this common business hurdle with the help of Cal Southern. The San Diego-based nonprofit group partners with community lenders like CDC Small Business Finance to secure loans for entrepreneurs who demonstrate great business potential but aren’t yet at a stage where they can lock in traditional bank financing.

“With our assistance, banks and other lenders like CDC are more comfortable providing larger loans to small businesses, particularly those in industries considered higher-risk,” said Juan Carlos Hernandez, chief credit officer of Cal Southern.

‘I always…wanted to be my own boss’

A Frost Me Gourmet creation.

Hermes did not always have her sights set on a career in baking.

In college, she focused on dancing, believing it would lead to professional opportunities. But when she injured her knee, she had to consider another vocation. She moved to San Diego eight years ago, lured out of North Dakota by Southern California’s most treasured asset: the sun.

To make ends meet, Hermes waited tables in a downtown restaurant while launching a cupcake and catering business on the side. Running the business as a part-time venture for several years took its toll. So she eventually devoted 100 percent of her energy to her fledgling small business.

“I always considered myself a leader and wanted to be my own boss,” she said.

‘Cupcake War’ win leads to validation, customers

Although Hermes didn’t win her first competition on “Cupcake Wars”, she was invited back the following year. Armed with recipes for espresso chocolate cherry, caramel cashew and apple molasses cupcakes, she won over the judges and was crowned “Cupcake Wars” champion.

The visibility that came from winning the reality TV competition validated her as a top-caliber baker and attracted scores of new customers.

“We started slow and for awhile I was questioning my career choice,” Hermes said. “But once I appeared on “Cupcake Wars,” things really started to take off.”

Turned down for traditional bank loan. What now?

After selling her inventive, frosted creations for a while out of a shopping-mall cabana and a store in Seaport Village, near downtown San Diego, she set her sights on opening a third location in the nearby neighborhood of Little Italy.

Her vision was ambitious. She would start with an empty commercial space and build out her new Frost Me Café & Bakery from scratch. But Hermes faced one glaring challenge – money.

After traditional banks turned down her request for a business loan, she followed up on a banker referral to community lender CDC Small Business Finance, who listened to her business story and kicked off the process of getting approved for an SBA Community Advantage loan and a companion SBA Microloan for a total of $295,000.

Cal Southern’s guarantee allows for business-loan flexibility

How does CDC Small Business Finance have the flexibility to work with small businesses that banks turn down?

One way is by working with Cal Southern, a state-sponsored, nonprofit organization that assumes a portion of the loan’s financial risk. This is possible, thanks to a state guarantee of up to 80 percent of a loan with a maximum dollar exposure of $2.5 million. The qualifying loan term is capped at seven years.

Since it was established 30 years ago, Cal Southern has guaranteed a total of $203 million, which has helped pave the way for small businesses to grow and create jobs in San Diego and Imperial counties. What’s more, minority and women-owned businesses are a special focus of this program.

“Ultimately, when you give small businesses a chance to thrive, they will,” said Hernandez, the chief credit officer of Cal Southern.

California Southern, state loan guarantee, loan guarantee, small business loan, business owner, small business owner
Frost Me Gourmet’s Little Italy location, in San Diego.

What’s next for Frost Me Gourmet?

With the loans from CDC Small Business Finance — made possible by Cal Southern’s loan guarantees — Hermes took a year to build out her new Frost Me Cafe & Bakery home in Little Italy.

Beyond show-stopping cupcakes, she now offers an array of baked goods, Ritual coffee, sandwiches and other lighter fare. And to augment store sales, she’s the go-to wedding cake baker for Hornblower and Flagship cruise lines.

With a few years of perspective now under her entrepreneurial belt, Hermes is quick to tell would-be small business owners the key ingredients to success.

“Hard work,” she said. “If you’re uncomfortable putting in the hours for something you love, rethink things.”

Lessons from Audrey Hermes' Business Journey

#1 – When you’re running your business, you need to put in the hours to make it successful. Not a fan of long hours? This may not be the path for you.

#2 -Think that full-time job precludes you from pursuing your passion? That’s not the case. Fully take advantage of your time off-the-clock to explore other interests.

#3 — Don’t let being turned down for traditional bank financing prevent you from pursuing your business dreams. Community lenders like CDC Small Business Finance have more flexibility than major banks and may be able to help you.

“With our assistance, banks and other lenders like CDC are more comfortable providing larger loans to small businesses, particularly those in industries considered higher-risk." - Juan Carlos Hernandez, chief credit officer of Cal Southern