FIGARO’S STORY. Figaro has been a barber on Seville Row for more than ten years. Four or five other barbers pay him to rent their chairs and they cut hair for their customers. Figaro rents his shop. Now, he wants to purchase and renovate a building for his barber shop and move the other barbers with him. Is that eligible?

Over my many years in SBA lending, I have been asked that question dozens of times. Sometimes it’s a beauty salon, a massage parlor, or a variation on the theme. But it’s always the same issue: Is a business like this eligible?

I went back in history for this one. Way back in October 2010, SBA SOP 50 10 5 C (page 106)  said “Businesses such as barber shops, hair salons, nail salons, and similar types of personal services businesses are eligible, regardless of whether they have employees or contract with individuals to provide the services that the business is providing directly to the public.”  

 And as recently as  October 1, 2020, SOP 50 10 6 said the exact same thing on page 143. I was about to assure you regular readers that nothing has changed and that Figaro’s Barber Shop was eligible. To make sure I had a reliable reference, I uploaded SOP 50 10 7.1 and did an ‘F5” search for “Barber” and found: Nothing.

I cannot remember how the expression goes … maybe something like, “The absence of evidence is not evidence of absence.” … or whether that expression applies at all. Yet I found SBA Information Notice 5000-1322  issued on October 10, 2014 (yes, nearly ten years ago). And it said basically what I’ve quoted above. I was about to hang up my investigative hat when I got a call from another barber.

SWEENEY’S STORY. Sweeney rents his shop on Fleet Street and other barbers rent their chairs from him. But Sweeney has bigger ideas. He’s had it with hands-on barbering. Sweeney wants to buy and renovate an “aesthetics mall,” and lease suites to multiple independent barbers. Sweeney will maintain the grounds, hallways, and restroom facilities. The barbers will maintain their individually leased spaces and make regular lease payments. Is Sweeney eligible for an SBA loan? Nope. Here’s why:

SBA considers business models which demonstrate these characteristics to be passive businesses and ineligible under the regulation in 13.CFR 120.110(c). When an applicant for financial assistance is in the business of maintaining and renting space to other businesses, it is a landlord and not eligible for an SBA guaranty.” 1

 That Notice is nearly as old as the Gettysburg Address, but it makes sense. If there are any updates of conditions causing change, I will let you know. Meanwhile, you can find me at Mrs. Lovett’s Restaurant. I hear her meat pies are to die for.

Richard Jeffrey, Senior Associate
CDC/504 Program

1SBA Information Notice 5000-1322 issued 10/10/2014.