SBA won't fund coworking??

[Rena Tom]

Help me out, all. I just had a conversation with the NYBDC (New York Business Development Corporation) which works with the SBA on lending. They said the SBA won't fund coworking spaces because it's too much like a landlord/subtenant situation which is not in their charter.

Have any of you taken a SBA loan for your space? This just sounds wonky to me.

Rena

[Jerome Chang]

An inside source once told me that the SBA doesn't finance operations based on passive income. Gyms with passive membership fees get away with it because they have a lot of trainers, retail sales, etc. 

So unless you can prove that more than 50% of your business is not passive, you're out of luck. 

Jerome

www.BLANKSPACES.com

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[Alex Hillman]

That's really interesting! Do they say why? 

It seems to me that passive income operations would be lower risk, but slower to pay off.

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/ah
indyhall.org
coworking in philadelphia

[Rena Tom]

Hm. Well I am seeing evidence of other spaces claiming to have received SBA loans: http://www.bizjournals.com/philadelphia/print-edition/2012/10/12/co-working-space-with-the-feel-of-a.html?page=all Obviously I need to do more research.

[Randall G. Arnold]

Which would support the idea of hosting a deli and/or magazine and other related sales activities onsite.  Is training considered passive?  After hours rentals?

 

Randy

Randall (Randy) Arnold
Developer and Enthusiast Advocate
http://texrat.net
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[Jerome Chang]

Alex, my understanding is that the govt is backing these bank loans. So the govt would want businesses to hire people to run the operations, not a kick-back-and-collect-revenue biz model. 

Yes you could sell magazines and stuff, but that would have to amount to a lot of revenue...at least equal to the coworking memberships. 1 desk = $500, vs 100 magazines @ $5 each. Multiply by at least 20 desks. Print magazines are dying so...

Rena, it's possible to convince some loan officer to convince the loan committee and therefore the SBA approval process, but it'd be an exception than the rule. 

Jerome

www.BLANKSPACES.com

[Alex Hillman]

That totally makes sense. 

FWIW, there's an argument that could be made that coworking helps its members grow their businesses and that when those businesses grow they're likely to hire. If you're describing your business as a desk rental/subscription rental model, it makes sense from Jerome's description that you should get turned down. But if you describe how your business model can be a catalyst for economic development (we talked about this in last friday's Office Hours, video here: http://www.youtube.com/watch?v=roBKm87wc6U), you may have a stronger case. 

At any rate, rather than speculate, I would reach out to Mike Maher from Benjamin's Desk  and ask about his SBA application and see how he pitched it. He's a super nice guy and I'm happy to have him as a neighbor here in Philly :)

-Alex

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/ah
indyhall.org
coworking in philadelphia

[Rena Tom]

i think the SBA instituted these rules to avoid using the money for real-estate speculation, yes, but as we all know, running a coworking space is far more hands-on than a sublease or even managed office. 

classes and event rentals can make up a large chunk of revenue but i don't want to pitch it as an event rental space! argh. this frustrates me so.

[Rena Tom]

good idea, will talk to Mike. 

I'm just upset that the person i talked to shut me down before i even explained fully what we intend to do.

[Randall G. Arnold]

I just threw magazines out as a quickie, not an end-all-be-all.  The point was supplementing operations with related retail; I know of spaces doing this.  And I led off with a deli because it was the stronger item, and would be a draw unto itself that could bring in potential customers.

 

Randy

[Alex Hillman]

I'm just upset that the person i talked to shut me down before i even explained fully what we intend to do.

Welcome to the world of entrepreneurship. If you're not getting shut down once in a while, you're probably not trying hard enough ;)

-Alex

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/ah
indyhall.org
coworking in philadelphia

[Jerome Chang]

Oh, I of course totally agree we aren't just a subleasing businesses but banks and govt policies do not understand us. And we all know to convince those two institutions to update their policies will take forever. 

If one were to rewrite their pitch so that membership fees pay for mentorship, then that might fly with the SBA better. But then you need to show expenses to pay for said mentors...

Retail. Again, unless you're selling high dollar products like jewelry or even tech stuff, retail would unlikely generate more revenue than memberships. And please please everyone, do not get into the food service business unless you really know that business. Just getting proper permits for restaurants, etc is hella hard, let alone the typically low margin business model. Yes yes, drinks are higher margin, but then please get an experienced architect to permit your two businesses (food, coworking). Mixed use businesses complicate your process with the govt agencies. I say this because a lot of my architecture practice is designing restaurants. 

Jerome

www.BLANKSPACES.com

[Randall G. Arnold]

My point was that some have made mixed use work, so it's one of many possibilities.  Certainly not for everyone, but worth mentioning IMO.

 

Randy

[David Singer]

There's a pathway for SBA loans for coworking ventures....an SBA rep presented on my panel at GCUC in Austin in March.  I think the issue for coworking financing is the collateral...and the liklihood that personal guaranties would be required.

David A. Singer
(914) 980-7301 - Cell

[Steve King]

As David pointed out below, the SBA rep at GCUC said they had funded several coworking spaces.  Having said that, keep in mind the SBA provides loan guarentees and the actual loan comes from an SBA approved lender. It's quite possible the lender involved is not willing to lend to a coworking facility.

 

We've also found in the past that many SBA lenders are very confused about SBA lending rules, which are complex. Because of this confusion there is a lot of misinformation about SBA lending in the marketplace.

 

I've reached out to the SBA for clarification.  I will update the group when I hear back.

 

Steve

[Derek Neighbors]

All,

On Thu, Apr 25, 2013 at 3:42 PM, Jerome Chang <jer...@blankspaces.com> wrote:

Oh, I of course totally agree we aren't just a subleasing businesses but banks and govt policies do not understand us. And we all know to convince those two institutions to update their policies will take forever. 

From a dollars and cents perspective however that is exactly what most coworking does.  Sublease real estate to business.  While many facilities do a lot more than that in reality on paper as a business the bank sees where revenues come from and expenses go to only.

Gangplank did a sizable SBA loan through Wells Fargo to purchase a building.  It is imperative that you have a solid, knowledgeable banker as well as good business advocates to lean on.  We spent an enormous amount of time with our banker getting them to understand what we do.  If he had not spent a lot of time with and in our space it would have never made it past the banks internal team.  Once they were able to grok it they helped coach us the right words to use and those to avoid in dealing with the SBA approval.  

It was a grueling process and more than once we thought it was going to fall a part before it all finally came together.  Moral of the story get good partners who want to understand you and do NOT give up.  Wells Fargo was chosen out of about 12 different bank we interviewed.  We knew we needed someone that would be going to bat for us.

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