SBA 7(a) Charter School Feasibility Study in California

The few charter school loans SBA makes in California

Charter schools are a hard case for SBA lending, and the California record shows exactly how narrow it is. The class here is elementary and secondary schools including charter schools, and the file holds 82 loans for FY2017 to FY2026 worth $79.2 million in gross dollars. California is second among states by loan count for the class, though the class is 25 of 39 inside the state. Most charter schools are nonprofits, a kind of borrower SBA does not lend to, so these loans are the exceptions and not a picture of the sector. Private schools sit under the same code, so the record blends the two and the charter slice cannot be isolated.

Size, brands and the loan table

The median loan is $555,000, a ratio of 1.18x to the national figure, with half of loans between $185,000 and $1.2 million. Franchise flags appear on 11.0% of loans, a share that may owe more to private school brands than to charter operators. U.S. Bank, National Association holds 11 loans, CDC Small Business Finance Corp. holds 6 and Live Oak Banking Company holds 5, as present holders. Los Angeles County has 21 loans, Santa Clara 10, Orange 7, and Contra Costa and San Diego 6 each. Annual counts ranged from 4 to 16, peaking at 16 loans and $15.9 million in FY2019, with 5 loans and $8.6 million in FY2026.

Cancellation and the charge-off floors

California school approvals across FY2017 to FY2024 were cancelled at 14.7% or more, and 16.2% if unfunded loans are counted too. California's 37 seasoned school loans produce 0.00% as the charge-off floor today, and 0.00% when only five years are counted. Those are floors on a small number of loans; schools take time to build enrolment, and trouble may show later.

What a California school study has to test

The California school study begins with enrolment demand: the number of school-age children in the attendance area, the quality and capacity of nearby public and private schools, and whether families will pay tuition. For a charter-related plan, the study must say who the borrower is, because SBA does not lend to nonprofits, and must show a for-profit operating structure and a lease or purchase of a facility. Staffing, licensing and curriculum costs have to be matched to a loan near $555,000, and facility cost explained when a plan reaches past $1.2 million. The payment should hold at a first-year enrolment well below capacity. A school building is a special-purpose property, so the valuation should consider what the building would be worth to another user.