SBA 504 Beauty Salon Feasibility Study

A salon loan sized like a building

Beauty salon borrowers took 551 SBA 504 loans from FY2017 to FY2026, worth $196.6 million. The median loan, $233,000, is what sets this cell apart: our screen finds it well clear of both of its parents. Against salon lending across both SBA programs it is large, because most salon lending runs through 7(a) at much smaller sizes; against the 504 program as a whole it is small, because a salon's premises are a modest asset. The middle half of these loans runs from $141,500 to $426,000. Since 504 money goes into fixed assets, usually the salon's own premises, the size tells a lender to underwrite a small commercial building rather than a business on a lease.

Franchise salons barely register, at 0.91% of loans; these are independent owners buying their own space. The CDC table is flat at the top: Granite State Economic Development Corporation and Florida Business Development Corporation hold 33 loans apiece, for $6.6 million and $12.7 million; Florida First Capital Finance Corporation, Inc. holds 32 for $6.9 million, Mountain West Small Business Finance 24 for $9.1 million, and Bay Colony Development Corporation 22 for $4.6 million. Florida leads the states with 61 loans, ahead of Massachusetts with 42 and California with 41, then Minnesota with 28. Lending peaked at 85 loans and $27.1 million in FY2022 and has eased since, to 45 loans and $23.5 million in FY2026.

Few losses, some fallout

Salon approvals from FY2017 to FY2024 lost a minimum of 11.7% to cancellation before funding, and the figure would rise to 14.8% if every loan still awaiting disbursement were counted as cancelled. On the loss side, none of the 210 loans disbursed in FY2017 through FY2021 shows a charge-off: the floor is 0.00%, and the five-year rate is 0.00% as well. Both are floors, so a lender should read them as no recorded losses so far, not as proof that salon real estate cannot lose money. One reading is that an owner who holds the building has more reason to keep paying for it.

Testing a salon building project

No limitation line is attached to this class, but the code records the borrower's industry, not the property, so the file cannot tell a freestanding salon from a unit in a strip center. A feasibility study for a 504 salon has to test demand by counting competing salons and booth rental options in the trade area, and the stylists the owner can keep; cost, because plumbing, ventilation and finish work push a small build-out above plain retail space; debt service coverage from service and retail revenue after stylist pay; and the appraisal, where the building should be valued as ordinary retail or office space that another user could occupy, since a lender cannot count on a salon buyer if the business closes.