SBA 504 Data Center Feasibility Study

What the 504 data center record really holds

The 504 program approved 50 data center loans from FY2017 to FY2026, $41.6 million in all, and the first thing a reader should know is what the class contains. SBA's data center code is shared with data processing and hosting firms, and a colocation building is indistinguishable there from a hosting service, so much of this record is likely technology firms rather than purpose-built data halls. The median 504 data center loan is $591,000, and half fall between $323,250 and $1.1 million, sizes that fit a hosting or processing firm buying its own building far better than a colocation facility. That median sits well above the class median across both programs, where small 7(a) loans dominate, but no figure here differs enough from 504 lending at large and from the class to count as distinct.

Thin cohorts and withheld losses

At least 10.9% of data center approvals from FY2017 through FY2024 were cancelled, rising to 13.0% if every hosting approval still undisbursed is counted as lost. The charge-off rate is withheld: the funded cohort holds fewer than 30 loans, too few for a rate we would stand behind, so this page gives no loss figure at all, and a reader should not read the gap as an absence of losses. The franchise share is 0.00%. Lending is scattered. The Mortgage Capital Development Corporation holds 5 of these loans worth $7.6 million. California has 10 loans, Texas 6, and Florida and Illinois 5 apiece. FY2019 brought 11 loans, and FY2026 just 1, for $217,000.

What a 504 study for a technology building must test

With so little loan history, a feasibility study carries more of the underwriting weight than usual. For a hosting or processing firm buying its building, the study has to test the business first: customer concentration, contract terms and churn, and whether revenue depends on a few clients who could move. For a true colocation or edge facility, demand means signed or likely tenants, network carriers at the site and competing capacity nearby. Cost has to cover power capacity and utility lead times, cooling, backup generation and fire suppression, since a late power connection can push back the whole project. Debt service coverage should hold on both the bank lien and the CDC debenture with a lost customer modeled. The appraisal will struggle to find comparable sales for a specialized building, so the study should establish what the property is worth as ordinary office or flex space if the technology use ends.