Stories From Entrepreneurs in SBA’s Most-Funded Businesses

Small Business, Small Business Loans
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Stories from Entrepreneurs in SBA’s Most-Funded Businesses

For the small-business owner seeking financing, a bank loan backed by the U.S. Small Business Administration is the holy grail. With APRs from 6.5% to 9% and terms ranging from seven to 25 years, the loans can be used to cover a variety of small-business needs — new equipment, new locations, inventory, payroll and more.

But businesses in some industries fare better than others when seeking SBA loan approval. A recent NerdWallet study analyzed SBA loan trends, including defaults and approval rates. Based on the study’s findings, here are five of the 20 fastest-growing businesses in loan approvals from 2001 through 2016 — and stories from borrowers who made the cut.

20 fastest-growing businesses* based on SBA loan approval (2001-2016)

Business**Loans approved in 2001Loans approved in 2016Percentage increase in loans
* Based on business types, or categories, that received 200 or more loans
** For detailed NAICS business descriptions, go to www.naics.com/search/

SOURCE: A NerdWallet analysis of data provided by the U.S. Small Business Administration
1. Offices of lawyers211
732246.9%
2. Fitness and recreational sports centers3101,019
228.7%
3. General freight trucking, local
255786208.2%
4. Offices of dentists
471
1,070
127.2%
5. All other specialty trade contractors383868126.6%
6. Landscaping services
405917126.4%
7. Snack and nonalcoholic beverage bars234524123.9%
8. Veterinary services224456103.6%
9. Other personal care services20940794.7%
10. Drinking places (alcoholic beverages)22039278.2%
11. All other personal services22038976.8%
12. Offices of physicians (except mental health specialists)44875267.9%
13. Hotels (except casino hotels) and motels61199062%
14. Engineering services20933560.3%
15. Limited-service restaurants1,5072,21446.9%
16. Beauty salons57383746.1%
17. Child day care services51174646%
18. Beer, wine and liquor stores40959746%
19. Single family housing construction24635243.1%
20. Full-service restaurants2,2802,91027.6%

Bars

Robin and Steve McGowan’s SBA-backed loan from Hancock Bank in Tallahassee, Florida, allowed them to realize a dream 35 years in the making: opening their own neighborhood bar.

Robin McGowan said the couple used their SBA loan to purchase all of the equipment and furniture for McGowan’s Hops and Grapes, and also to create a financial buffer for any unexpected expenses that might pop up.

Over the past 16 years, businesses classified as “Drinking Places (Alcoholic Beverages)” saw 78% growth in SBA loan approvals for the 10th spot on the list. Although the McGowans were familiar with SBA-backed loans, it wasn’t until the couple approached Hancock Bank for financing that they were told financing via the SBA was the best avenue for them.

Despite warnings from fellow business owners that their application was sure to be denied the first time they applied and that the process would take several months, the couple was approved and received financing within just three months.

“Everybody warned us — don’t count on it because it’s not going to happen,” Robin McGowan says. “Then, it happened.

“It was an extremely easy process for us.”

Gyms

As interest grows in all things wellness, it’s perhaps unsurprising that gyms and recreational fitness centers constitute the second fastest growing business category based on SBA loan approvals. Encompassing businesses such as yoga studios, personal trainers and boutique gyms, the industry has seen a nearly 229% increase in loan approvals from 2001 through 2016. These businesses are also the fastest-growing category for loan approvals from 2011 through 2016.

For Burlington, Washington-based rock climber Brandon Workman, starting a business was an act of necessity as much as it was an act of opportunity. His go-to climbing gym was closing, and Workman was facing a nearly two-hour drive to Seattle or one-hour drive to Everett if he wanted gym time.

He began tinkering with a business plan for his own climbing gym, eventually partnering with the Economic Development Alliance of Skagit County, which provides resources for local small businesses and entrepreneurs, to finalize his strategy. With a business plan in hand, he approached multiple local banks for funding but was shot down the first few times he applied.

“I think a lot of people didn’t really understand what climbing gyms were,” Workman says. “I don’t know, the numbers just didn’t make sense to them.”

Receiving startup funding from the SBA without a proven history in business can be difficult, but Workman eventually found support at Heritage Bank, which, with two former climbers on staff, was willing to take a chance on the unconventional fitness center. Workman used the SBA loan funds primarily to build out 5,000 square feet of climbing space, and he opened the Riverstone Climbing Gym in July 2016.

Other services

Businesses that fall into the category of “Other Personal Care Services,” such as those that offer tattoos, massages or wellness services, mark the ninth fastest growing business category based on loan approvals for the past 16 years (and the third-fastest for the past six). Nevertheless, Linda and Carlos Casias struggled to secure the financing they needed for their flotation therapy center in Los Alamos, New Mexico.

Float Los Alamos, which the couple opened in 2015, features flotation water tanks meant to ease stress, anxiety or physical pain. Originally developed in the 1950s, flotation tanks are gaining popularity across the country, but they are still a relatively unknown, and unproven, business.

“We couldn’t even get in the door of a local bank,” Linda Casias says. “We couldn’t even get callbacks from them. We reached a point where we were not going to do it because we couldn’t get the funding.”

Instead, the couple decided to fund their business primarily with personal credit cards. A year later, and with proven financials, they approached the regional headquarters of Accion, a nonprofit small-business lending network. The organization participates in the SBA Community Advantage Program, which helped the Casiases get access to SBA-backed financing.

Though they didn’t receive the full loan amount they applied for, the couple was able to pay off about half of their credit card debt, and they hope to approach Accion again at the end of the year to request additional financing.

Day care

Established 37 years ago, Marcia Pioppi Galazzi’s child care business, the Family School, in Brewster, Massachusetts, has since added a day camp and child care facility on the same site, offering options for kids from infancy to the 10th grade.

As the business grew, so did the amenities. In 1987, Galazzi decided to build a swimming pool for the kids to enjoy.

“Turns out swimming pools, especially semi-public pools, have a shelf life,” Galazzi says. The pool received regular maintenance and was updated once, but New England winters continued to wreak havoc on the cement deck, and the pool’s vinyl lining needed replacing. Galazzi and her staff began searching for funding in 2015 to make repairs.

SBA loans to child day care services jumped 46% over 16 years, making it the 17th fastest growing business based on loan approvals. The industry jumps another nine positions if you look at a shorter time period, coming in eighth from 2011 through 2016.

While the length of time Galazzi had been in business was likely a beneficial data point during the underwriting process, it didn’t make the process any easier, she says. Besides the tedium of weeding through 37 years of financial documents, Galazzi faced one major hiccup during the application process: Banks aren’t in the practice of offering loans with a 30-year term to 75-year-old entrepreneurs. Galazzi got to work creating a succession plan for her business, which helped put the bank at ease.

“It was partly funny and partly a reality check,” Galazzi says. “I think that’s probably what the SBA loan process brings to mind. It is a reality check all the way.”

It was also an elaborate process, and she was grateful she could delegate much of the work to trusted, longtime staff members.

“It’s more tedious than I would have liked it to be, but it all seems to make sense,” Galazzi says. Her other option was to take out a second mortgage on the property, which she admits may have provided more flexibility but would likely have come with a higher rate.

“This is one of those deals where a decision carefully made over time proves the efficacy of the decision,” she says. “I think this is something we’ll look back and on and say, ‘Weren’t we great to lock in that rate?’”

Law offices

Over the past 16 years, the number of SBA loans to offices of lawyers has jumped nearly 247%, making it the fastest-growing business category by loan approvals. While myriad factors likely influenced the increase, one possibility is that more lawyers are making their own way in the wake of layoffs and hiring freezes during the Great Recession.

Tom Morgan, professor emeritus at George Washington University Law School, still relies on a classic rule of thumb from a study out of Chicago University in the 1970s: The demand for lawyers grows at the same rate as the GDP.

“I have found it very useful, even today,” he says.

While increased use of technology may change the exact correlation, the general principle is quite reliable, he says. When the economy was shrinking, law schools were still churning out lawyers at a pre-recession level. The industry found itself with a surplus of lawyers and a lack of jobs, effectively ending the notion that law was a recession-proof career path.

In a bulletin released in December 2016 by the National Association for Law Placement, two variables seem to have the biggest impact on employment prospects for new law graduates: class size and available jobs at big law firms. The placement group estimates that entry-level jobs at big law firms fell by over 3,000 positions from 2008 to 2011.

Jobs at small firms, however, peaked in 2012 and 2013. According to the same bulletin, small law firms weren’t necessarily thriving after the recession, but “faced with a dearth of opportunities at larger law firms, many graduates created opportunities for themselves in small law firms out of necessity.”

Another possible reason for the rise: It appears attorneys are more likely to repay their SBA loans on time. According to NerdWallet analysis, the default rate of loans approved from 2006 through 2015 to offices of attorneys was 9% compared with the 17% average rate of SBA loan defaults for all business categories.

More on SBA loans from NerdWallet

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