SBA 7(a) Data Center Feasibility Study in Texas

Texas data centers: second in the country, 22nd in the state

Texas takes second place nationally in 7(a) data center loans, yet data centers rank only 22 of 39 among Texas asset classes. That is the reverse of most cells: a niche inside Texas that is large by national standards. From FY2017 to FY2026 SBA approved 97 loans, worth $56.8 million. The typical loan is modest at $185,000, or 0.93x the nationwide 7(a) midpoint, and the central half runs from $100,600 to $350,000. No loan is franchised, at 0.00%. The class mixes small colocation or server-room operators with other computing businesses.

The code blurs the product

The industry code that defines this class holds colocation buildings together with hosting and data processing businesses, so a loan in this table may finance an office-based hosting firm as readily as a purpose-built facility. That is the most important limit on any reading of these figures, and the proposal itself must name which kind of project it describes. The early-cohort loss rate for Texas is withheld because too few loans funded, and its absence is not a zero.

Texas holders, counties and cancellation

Newtek Bank, National Association holds 16 of the loans for $8.6 million. BayFirst National Bank holds 11 for $1.7 million, The Huntington National Bank 6 for $1.6 million, and Northeast Bank 5 for $545,600. These are the holders SBA reports at present. Dallas County has 22 loans, Travis 16, Harris 14, Collin 10, and Tarrant and Williamson 6 each, so the lending sits in the large metro counties. Cancellation is 17.5% on both the floor and the ceiling. Dollar volume has swung from $10.7 million in FY2018 to $962,000 in FY2022, then $11.6 million in FY2023 and $10.4 million in FY2026.

Testing a Texas data center proposal

The first test is definition: is the project a facility leasing space and power to tenants, or a hosting company that owns its servers? Demand for the first kind depends on the signed or likely tenants, the power and connectivity available at the site, and the competing capacity in the same market. Cost lines include electrical supply, cooling, backup generation and fibre connections, which dominate a conventional building budget. Power reliability and its price are risks to operating margin, so the study should show a sensitivity. The payment needs to be covered while the space is leased up, since the revenue arrives only once tenants commit. An appraiser may find few sales of comparable properties, so the study should explain what the facility could be worth to a later owner. With a typical request of $185,000, a smaller operator should show that the equipment purchased has a useful life that extends beyond the loan term.