SBA 7(a) Data Center Feasibility Study

Hosting firms, not server halls

Across FY2017 to FY2026, 7(a) approved 911 loans in the data center class, worth $476.9 million, the large majority of SBA lending in the class. The class label needs reading carefully: the industry code behind it is shared with data processing and hosting companies, and SBA cannot tell a colocation building from a hosting service, so most of these borrowers are likely technology service firms. The loan sizes say the same. The median 7(a) hosting loan is $200,000, and half fall between $84,400 and $440,500, far from what a server hall costs. Nothing here stands apart from both 7(a) at large and the hosting class across programs, which is to be expected when 7(a) is most of that class.

High charge-offs for a technology class

The charge-off record is what a lender should study here. Of the 331 data center class loans funded from FY2017 to FY2021, at least 6.9% have been charged off, and 3.3% of hosting loans failed before year five, the number a lender will build the loan structure around. Cancellation runs at an 11.2% floor for hosting and processing approvals of FY2017 through FY2024, with a 12.7% ceiling. Franchises are nearly absent at 0.44%. Newtek Bank, National Association is the most active lender, holding 97 loans worth $60.3 million; The Huntington National Bank has 67, Northeast Bank 44, and Manufacturers and Traders Trust Company and U.S. Bank, National Association 43 each. California has 103 loans and Texas 97, then New York 64, Florida 60 and Ohio 38. Approvals reached 151 and $72.8 million in FY2024 after a low of 55 in FY2020.

Testing a 7(a) technology services loan

In a hosting loan of this size the collateral is mostly the business itself, so a feasibility study has to test the revenue that services the debt. That means customer concentration, contract length and renewal history, recurring against project revenue, and whether key clients follow the founder rather than the firm. For an acquisition, the study should separate revenue that transfers with the business from revenue tied to the seller. For a facility build, demand means likely tenants and network access, and cost means power, cooling and backup capacity with realistic utility timelines. Model coverage with the biggest hosting customer gone and the floating rate higher. The appraisal, often a business valuation more than a real estate report, has to rest on earnings the study can defend, because a 6.9% loss floor leaves little room for an optimistic forecast.