1. Funding Request Summary
Luxa Salon Suites requests an SBA 7(a) Small Loan to finance the build-out of an 18-suite salon suites facility in Loudoun County, Virginia. The total project funding package includes owner equity, SBA loan proceeds, and working capital reserves.
| Element | Amount | Notes |
|---|
| Loan Requested | $228,000 | SBA 7(a) Small Loan |
| Owner Equity | $57,000 | 20% injection |
| Working Capital | $35,000 | 6-month operating bridge |
| Total Project | $320,000 | Complete funding package |
Funding Sources and Uses Summary
TOTAL PROJECT FUNDING: $320,000
SOURCES:
├── SBA 7(a) Loan: $228,000 (71%)
├── Owner Equity: $57,000 (18%)
└── Working Capital: $35,000 (11%)
TOTAL OWNER INVESTMENT: $92,000
REMAINING CUSHION: $58,000 (post-close)
2. Loan Terms Requested
SBA 7(a) Small Loan Specifications
| Parameter | Value | Notes |
|---|
| Loan Type | SBA 7(a) Small Loan | Under $350K qualifies for streamlined processing |
| Amount Requested | $228,000 | 80% of net build-out cost |
| Term | 10 years | Standard for non-real estate business loans |
| Rate Structure | Variable | Prime + spread |
| Estimated Rate | 10.5% - 12.0% | Current Prime ~7.75% + 2.75%-4.25% spread |
| SBA Guarantee | 75% | Standard for loans >$150K |
| Prepayment Penalty | None | SBA standard (no penalty on 10-year terms) |
Why SBA 7(a) Small Loan?
- Program Fit: Correct program for leasehold improvements (SBA 504 requires real estate ownership)
- Streamlined Processing: Loans under $350K qualify for simplified underwriting
- Rate Advantage: Prime + spread beats conventional commercial loan rates
- Term Length: 10-year term provides manageable monthly payments
- SBA Guarantee: 75% guarantee improves lender approval probability
- Flexibility: Single loan covers construction, FF&E, permits, and professional fees
Payment Scenarios by Interest Rate
| Rate | Monthly P&I | Annual Debt Service | DSCR @ 85% Occupancy |
|---|
| 10.5% | $3,064 | $36,768 | 1.54x |
| 11.25% | $3,151 | $37,812 | 1.50x |
| 12.0% | $3,266 | $39,192 | 1.45x |
All rate scenarios exceed SBA minimum DSCR of 1.25x with substantial margin.
3. Use of Funds
Detailed Use of Funds Breakdown
| Category | Amount | % of Loan | Description |
|---|
| Construction | $150,000 | 65.8% | Framing, electrical, plumbing, HVAC, finishes |
| FF&E | $35,000 | 15.4% | Furniture, fixtures, equipment (US/China sourcing) |
| Permits & Fees | $5,000 | 2.2% | TI permit, ZCU, salon permit, inspections |
| Professional Fees | $10,000 | 4.4% | Architect, legal, customs broker |
| Contingency | $20,000 | 8.8% | 10% buffer for change orders/delays |
| Security Deposits | $8,000 | 3.5% | Lease deposit (1-2 months rent) |
| TOTAL | $228,000 | 100% | |
Construction Cost Detail ($150,000)
| Trade | Amount | % of Construction |
|---|
| Demolition | $4,500 | 3% |
| Framing/Drywall (STC 48-52) | $37,500 | 25% |
| Electrical | $27,000 | 18% |
| Plumbing (10 shampoo bowls) | $22,500 | 15% |
| HVAC | $18,000 | 12% |
| Flooring (Premium LVP) | $15,000 | 10% |
| Paint/Finishes | $10,500 | 7% |
| Doors/Hardware | $7,500 | 5% |
| Ceiling (Acoustical) | $7,500 | 5% |
| Total Construction | $150,000 | 100% |
FF&E Detail ($35,000)
| Item | Qty | Unit Cost | Total | Source |
|---|
| US-Sourced | | | $18,100 | |
| Shampoo bowls | 10 | $600 | $6,000 | US (warranty) |
| Washer/Dryer | 2 | $1,000 | $2,000 | US (warranty) |
| Lighting (CRI 90+) | 50 | $100 | $5,000 | US |
| Access control | 1 | $3,500 | $3,500 | US (support) |
| Security cameras | 1 | $1,600 | $1,600 | US (support) |
| China-Sourced | | | $15,220 | |
| Styling chairs | 18 | $250 | $4,500 | China (landed) |
| Mirrors | 18 | $120 | $2,160 | China (landed) |
| Wall cabinets | 18 | $120 | $2,160 | China (landed) |
| Base cabinets | 15 | $180 | $2,700 | China (landed) |
| Carts/trolleys | 18 | $100 | $1,800 | China (landed) |
| Reception/furniture | 1 set | $1,900 | $1,900 | China (landed) |
| Local | | | $2,000 | |
| Exterior signage | 1 | $2,000 | $2,000 | Local |
| TOTAL FF&E | | | $35,320 | |
Cost Advantage: Split sourcing strategy saves 39% ($22,530) versus all-US purchasing while maintaining quality on critical items.
4. Owner Investment
Owner Contribution Summary
| Category | Amount | Source | Timing |
|---|
| Equity Injection | $57,000 | Personal savings | At closing |
| Working Capital | $35,000 | Personal savings | At closing |
| Total Owner Investment | $92,000 | From $150K available | |
| Remaining Cushion | $58,000 | Reserved for contingency | Post-close |
Equity Injection Detail ($57,000)
- Percentage of Loan: 25% (20% of net project cost)
- SBA Requirement: 10% minimum
- Excess Over Requirement: $34,200 (double the minimum)
- Demonstrates: Strong owner commitment and reduced lender risk
Working Capital Allocation ($35,000)
The working capital reserve (separate from loan proceeds) bridges the 6-month occupancy ramp period:
| Month | Expected Occupancy | Projected Deficit | Cumulative Draw |
|---|
| 1 | 35% | $7,500 | $7,500 |
| 2 | 42% | $6,200 | $13,700 |
| 3 | 49% | $4,800 | $18,500 |
| 4 | 56% | $3,500 | $22,000 |
| 5 | 63% | $2,100 | $24,100 |
| 6 | 70% | $500 | $24,600 |
| Remaining Buffer | | | $10,400 |
Source of Owner Funds
| Asset | Amount | Documentation |
|---|
| Personal Savings | $150,000 | Bank statements (3 months) |
| Less: Equity Injection | ($57,000) | |
| Less: Working Capital | ($35,000) | |
| Remaining After Investment | $58,000 | Available for emergencies |
5. Collateral
Collateral Offered
| Collateral Type | Description | Value |
|---|
| Personal Guarantee | Full personal guarantee from owner(s) | N/A |
| Business Assets | All equipment, FF&E, improvements | ~$228,000 (loan amount) |
| Lease Assignment | Assignment of commercial lease (if required) | Landlord consent |
Collateral Notes
- SBA Standard: Personal guarantee is standard requirement for SBA 7(a) loans
- UCC-1 Filing: Lender will file UCC-1 on all business assets
- Lease Assignment: May require landlord consent; will negotiate if needed
- No Real Estate: This is a leased facility; no real estate collateral available
6. Repayment Plan
Debt Service Coverage Analysis
| Year | Gross Profit | Annual Debt Service | DSCR | Status |
|---|
| 1 | $8,105 | $36,768 | 0.22x* | Covered by WC reserve |
| 2 | $56,812 | $36,768 | 1.54x | Strong coverage |
| 3 | $58,476 | $36,768 | 1.59x | Strong coverage |
*Year 1 shortfall of ~$28,663 is covered by the $35,000 working capital reserve, leaving $6,337 buffer for unexpected needs.
Rate Sensitivity on Repayment
| Interest Rate | Monthly P&I | Annual Debt Service | DSCR @ 85% Occ |
|---|
| At 10.5% | $3,064 | $36,768 | 1.54x |
| At 11.25% | $3,151 | $37,812 | 1.50x |
| At 12.0% | $3,266 | $39,192 | 1.45x |
All scenarios exceed SBA minimum DSCR of 1.25x.
10-Year Amortization Summary (at 10.5%)
| Year | Beginning Balance | Principal Paid | Interest Paid | Ending Balance |
|---|
| 1 | $228,000 | $12,512 | $24,472 | $215,488 |
| 2 | $215,488 | $13,896 | $23,088 | $201,592 |
| 3 | $201,592 | $15,434 | $21,550 | $186,158 |
| 5 | $171,328 | $17,036 | $19,748 | $154,292 |
| 10 | $29,248 | $29,248 | $7,536 | $0 |
| Total | | $228,000 | $140,816 | |
Total Cost of Loan: $368,816 ($228,000 principal + $140,816 interest)
7. Risk Mitigants
Financial Risk Mitigants
| Risk Factor | Mitigant | Impact |
|---|
| Occupancy Shortfall | Break-even at 62%, target 85% | 23-point cushion |
| Year 1 Cash Flow | $35,000 working capital reserve | Covers 6-month ramp |
| Rate Increase | All scenarios maintain 1.40x+ DSCR | Adequate buffer |
| Expense Overrun | 10% contingency in build-out budget | $20,000 protection |
Market Risk Mitigants
| Risk Factor | Mitigant | Evidence |
|---|
| Demand Uncertainty | Validated market demand | High competitor occupancy and geographic gap (Phase 1-2 research) |
| Competition | Quality-value positioning | Premium features at competitive rates |
| Economic Downturn | Low break-even point | 62% vs. industry 70-75% |
Operational Risk Mitigants
| Risk Factor | Mitigant | Impact |
|---|
| Management Capacity | Owner-operated model | No management salary expense |
| Tenant Turnover | 6-month minimum lease terms | Profitability on every tenant |
| Facility Quality | Premium soundproofing (STC 48-52) | Tenant retention differentiator |
Capital Position Summary
| Capital Element | Amount | Purpose |
|---|
| Equity injection | $57,000 | 20% owner commitment |
| Working capital | $35,000 | 6-month operating bridge |
| Remaining savings | $58,000 | Emergency/contingency buffer |
| Total Owner Capital | $150,000 | Substantial financial backing |
8. Disbursement Request
Milestone-Based Disbursement Schedule
Funds will be disbursed based on construction milestones to manage lender risk:
| Milestone | % of Loan | Amount | Trigger |
|---|
| Closing | 30% | $68,400 | Loan docs signed, lease executed |
| Rough-In Complete | 30% | $68,400 | Framing, MEP rough-in inspected |
| Substantial Completion | 30% | $68,400 | Certificate of occupancy pending |
| Final | 10% | $22,800 | CO issued, punch list complete |
| TOTAL | 100% | $228,000 | |
Disbursement Alignment with Contractor Payments
| Construction Phase | Contractor Invoice | Lender Disbursement |
|---|
| Contract signing | 30% ($45,000) | Closing draw covers |
| Rough-in complete | 30% ($45,000) | Second draw covers |
| Substantial completion | 30% ($45,000) | Third draw covers |
| Final/punch list | 10% ($15,000) | Final draw covers |
Note: Disbursement amounts exceed contractor requirements at each phase, providing working buffer for permits, professional fees, and FF&E procurement which occur in parallel.
9. Exit Strategy
Primary Exit: Continued Operations
The primary plan is to operate the facility at 85%+ occupancy with positive cash flow:
| Metric | Year 2 | Year 3 | Year 5 |
|---|
| Occupancy | 85% | 85% | 85% |
| Gross Profit | $56,812 | $58,476 | ~$62,000 |
| Debt Service | $36,768 | $36,768 | $36,768 |
| DSCR | 1.54x | 1.59x | ~1.69x |
Alternative Exit: Refinance
After 2-3 years of operating history, conventional refinancing options become available:
| Timeline | Option | Benefit |
|---|
| Year 3+ | Conventional bank loan | Lower rate (no SBA guarantee fee) |
| Year 5+ | Cash-out refinance | Access equity for expansion |
Alternative Exit: Sale
Salon suites businesses are attractive acquisition targets:
| Valuation Method | Multiple | Implied Value |
|---|
| EBITDA multiple (industry) | 2-4x | $113,000 - $234,000 |
| Revenue multiple | 0.5-1.0x | $118,000 - $235,000 |
Note: Sale value increases significantly once facility achieves 3+ years operating history and stable 85%+ occupancy.
10. Why SBA 7(a)?
Program Fit Analysis
| Factor | SBA 7(a) | Alternative | Verdict |
|---|
| Loan Size | $228,000 (under $350K streamlined) | N/A | Ideal fit |
| Use of Funds | Leasehold improvements | 504 requires RE | 7(a) correct |
| Term | 10 years | Conventional 5-7 years | Better cash flow |
| Rate | Prime + 3-6% | Conventional +2-3% higher | Lower cost |
| Guarantee | 75% SBA | None | Improved approval |
| Collateral | Standard (PG + assets) | Conventional more stringent | Achievable |
Why Not Alternative Programs?
| Program | Why Not Selected |
|---|
| SBA 504 | Requires real estate ownership; not applicable for leased space |
| SBA Express | Only 50% guarantee (vs. 75%); increases lender risk |
| Conventional | Higher rates, shorter terms, stricter collateral |
| ROBS (401k) | Requires C-corp structure; adds complexity and tax risk |
| Equipment Financing | Only covers FF&E; cannot fund TI or working capital |
SBA 7(a) Advantages for This Project
- Single Loan Solution: Covers construction, equipment, permits, and fees in one loan
- Manageable Payments: 10-year term keeps monthly payment at ~$3,064
- Rate Protection: SBA caps maximum spread at 6.5% for loans under $250K
- Streamlined Process: Under $350K qualifies for simplified underwriting
- Flexible Disbursement: Milestone-based draws align with construction schedule
- No Prepayment Penalty: Can refinance or pay off without penalty
Summary
Luxa Salon Suites presents a well-structured funding request supported by:
- Conservative Financial Projections: Break-even at 62% occupancy, well below 85% target
- Strong DSCR: 1.54x at target occupancy, exceeding SBA 1.25x minimum by 23%
- Substantial Owner Investment: $92,000 total (20% equity + working capital)
- Remaining Capital Cushion: $58,000 available after investment
- Validated Market Demand: High competitor occupancy and geographic gap indicate unmet demand
- Clear Use of Funds: Detailed allocation with appropriate contingency
The requested $228,000 SBA 7(a) Small Loan, combined with owner equity and working capital, provides complete funding for facility launch with appropriate reserves for the occupancy ramp period.
Funding Request prepared for SBA 7(a) Small Loan Application
Luxa Salon Suites - Phase 14 Business Plan Assembly