Hitting a Wall: Salon Suite Model Feasibility with SBA Financing

Over the past few weeks, I’ve been analyzing the salon suite model and I’m coming to a realization: For investors with cash, these properties can work. They typically return 8%+ cash-on-cash in an all-cash deal, which makes sense for yield-focused real estate investors. But as a buyer using SBA leverage, it’s a different story. When purchasing stabilized NOI salon suite CRE, the deals are often overpriced relative to SBA 7(a) terms. The debt service ends up overwhelming the NOI, leaving little to no free cash flow. An alternative approach is to buy a cheaper shell and do the buildout. This lowers the total cost, allows for longer 25-year amortization with SBA 504, and can produce a higher NOI. However, in practice the cash flow is still fairly anemic once debt service is layered in. My conclusion so far: the suite model at small scale is equity-building, not income-yielding. To generate meaningful owner income, I’d need very large-scale buildings (100+ suites) and significant capital for buildout. That’s not easily achievable within my SBA-focused acquisition criteria. Ask: Has anyone found a creative way to make the salon suite model work for an SBA-financed buyer? Or should I accept that this is primarily an all-cash / institutional investor play unless pursued at very large scale? Appreciate any feedback or experiences others can share!