Small Business Loans for Music School

According to a December 2020 survey among 1,059 music teachers from 31 countries, the demand for music lessons remains high even as typical in-person lesson structures are disrupted. Even though the COVID-19 pandemic has required a shift to online music teaching, 88.12% of music teachers have lost fewer than five students since March 2020. Additionally, more than 40% of teachers surveyed have lost no students at all. It’s evident that the desire to learn a new instrument is growing and music schools are growing along with it.

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That said, this shift to online teaching comes with new costs. For the overwhelming majority of music teachers whose lessons are now at least partially online, new technology must be implemented, leading to additional music school costs. Earning the money to cover these costs may prove challenging as, despite the aforementioned student retention rates, lower discretionary spending during the pandemic may make finding new students more challenging. Small business loans for music schools can help cover these costs – read on to learn more about low-cost funding options.

Financing Options for Established Music Schools During the COVID-19 Coronavirus Pandemic

In March 2020, the federal government passed the CARES Act in response to the COVID-19 emergency. This bill launched the Paycheck Protection Program (PPP), a Small Business Administration (SBA) loan program that links small business owners, including music teachers, with funding for business stabilization and growth.

After the first round of PPP applications closed on August 8, 2020, the federal government approved a second round on December 27, 2020. According to the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the "Act"), this second round allows for new loan use types in addition to the first round’s focus on payroll.

To learn more about how you can apply for and use PPP loans, please check our related articles listed below:

For regular updates on loan opportunities and forgiveness please check SmartBiz Loans COVID-19 information center.

Applying for a first or second PPP loan in 2021

The SmartBiz streamlined PPP Loan application can help you fill out your application, upload required documents, and submit them to the bank quickly.**

SmartBiz can help you apply for these funds. We have specialized in SBA loans since 2013 and our network of banks has funded nearly $4 billion in SBA, PPP, and bank term loans.

Whether this is your first or second PPP loan, SmartBiz can help! Businesses with less than 500 employees that are negatively impacted by the pandemic can apply for their first PPP loan.

The program expires on May 31, 2021. No applications will be accepted after that date. Keep an eye on the SmartBiz Small Business Blog for updated information about an extension if approved by congress.

Funding challenges and opportunities for music schools

Some funding challenges you might encounter while searching for music school loans are shared across many industries. For example, if your school is relatively new or lacks business ownership experience, many lenders may find you too risky to approve for funding. And as the COVID-19 economic crisis continues, some lenders may hesitate to approve loans for industries dependent on consumers’ discretionary spending, including the music education industry.

On the other hand, there are some reasons why music schools might face fewer funding challenges than other businesses. As the aforementioned December 2020 report shows, demand for music education remains steady, so lenders may worry less that you’ll be unable to repay your loans. Additionally, the demand for music education among young children and adolescents whose parents can afford music lessons has steadily risen in recent years and shows no clear signs of slowing.

These circumstances suggest that music teachers, such as yourself may be facing a favorable lending market. To thoroughly determine whether you’re in prime shape for small business loans for music schools, try pursuing one of the below funding routes.

Funding options for music schools

You can obtain small business funding for your music school through the SBA or several non-government sources. No two small business loans for music schools have the same periods and rates, but after reading the below guidelines, you should have at least some idea of what to expect.

The SBA 7(a) loan program

Low-cost SBA 7(a) loans are often viewed as the smartest funding choice for small businesses such as music schools. SBA 7(a) loans’ strong reputation stems from their low rates, long terms, and low monthly payments. Music teachers like yourself can use SBA 7(a) loan funds toward:

  • Obtaining Working Capital Working capital is perhaps the foremost indicator of your music school’s health. To calculate this figure, subtract your current liabilities from your current assets or determine how much cash your music school has on hand. A negative working capital value means that it’s time to grow your assets, which you can do by putting your SBA 7(a) funds toward buying new equipment purchases or hiring new employees.
  • Consolidating Your Debts – SBA 7(a) debt consolidation loans allow you to refinance all your music school’s current small business loans, including merchant cash advances, short-term business loans, daily or weekly payment loans, and high-interest business loans.
  • Buying Commercial Real Estate – If you plan to open a second music school facility, your SBA 7(a) loan can cover your commercial real estate purchase costs. You can use your loan to buy owner-occupied commercial real estate or refinance your current commercial real estate mortgages.

Advantages of SBA 7(a) loans for music schools

SBA 7(a) loans are widely regarded as the “gold standard” for small business funding due to their:

  • Affordable monthly payments
  • Low rates
  • Lack of prepayment penalties
  • 10-year terms (25 years for commercial real estate loans)
  • Availability in all 50 states
  • Wide use of funds

Requirements for music schools to apply for SBA 7(a) loans

To apply for SBA 7(a) loans, you and your music school must meet the following requirements:

  • You must be a U.S. citizen or lawful permanent resident
  • You must be at least 21 years old
  • Your personal credit score must be at least 650
  • You must not have bankruptcies or foreclosures in the last three years
  • Your music school must be based in the U.S.
  • Your music school must be at least two years old
  • Your music school must have no outstanding charge-offs, recent settlements, or tax liens
  • You and your music school must be on-schedule with all government-related loan repayments

Some loan providers may have additional requirements uncommon among others. For example, some lenders mandate that applicants present a business plan, but SmartBiz Loans has no such requirement.

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How to apply for an SBA 7(a) loan for music schools

Step 1: Confirm that you and your music school qualify for SBA 7(a) loans as per the above requirements. Read more via the SmartBiz Loans guide to SBA Loan Requirements for Existing Businesses.

To discover how your business financials stack up for funding, use our easy-to-use online tool. SmartBiz Advisor™ helps you track the financial health of your business and learn how banks typically evaluate your business.* SmartBiz Advisor also recommends ways to help you improve your credit and strengthen the financial health of your business as needed. Read feedback from real SmartBiz Advisor users and sign up here.*

Step 2: Get all your required paperwork together and, if needed, have your bookkeeper, accountant, or another financial expert help you with this potentially daunting task. Read the SmartBiz Loans Guide to SBA Loans to learn more.

Step 3:  Decide the lender from which you’ll borrow money based on the lender’s:

Fees

Your loan is likely to include repayment fees and interest fees, but excessive additional fees can be a red flag. Additionally, a trustworthy lender will make all your loan fees due during your loan’s lifetime and before your loan’s funding.

Reviews

Look at your lender’s reviews on TrustPilot, Google, and Consumer Affairs to determine whether their services adequately fit your funding needs. Double-check that you’re reading reviews by actual customers, and try to find other music teachers among the reviewers – their experiences may best elucidate what you might experience.

Obvious loan terms

Your loan’s fine print should be easy to understand. If it isn’t, your loan terms may mask payment schedules and loan costs that ultimately prove unfavorable for your music school. Ask your lender about your possible collateral requirements, total loan amounts, payment frequency and amounts, and prepayment penalties. If your lender’s answers are vague or unhelpful, it may be best to choose a different lender.

Availability

All lenders, even those who pride themselves on obvious loan terms, should be regularly reachable via phone or email. These lenders should also pair you with a representative who knows your application, your music school, and the music teaching industry like the back of their hand.

Transparency

Your lender should clearly state your loan’s APR and interest rate. If not, your lender may ultimately prove unwilling to elaborate on your loan terms more deeply. This lack of clarity can hide provisions that will lead to more costs down the line.

The SBA 504 loan program

Small businesses, including music schools, can use SBA 504 loan program proceeds toward modernization or expansion projects. SBA 504 loans can cover the costs of opening new music school locations, hiring new employees, or upgrading your equipment.

SBA 504 loans can make an even greater difference if your school falls in line with the public policy goals of your local community development corporation (CDC). In this case, your SBA 504 loan can cover up to 50% of your project costs. Your CDC can then cover up to 40%, thus leaving as little as 10% to you.

The SBA microloan program

If your school qualifies as a very small business (a.k.a. microbusiness) in the eyes of the SBA, you may be able to apply for the SBA Microloan Program. SBA microloans are at most $50,000, and you can use them for all business costs except commercial real estate purchases and debt payments.

Non-SBA loans and other funding options

Although SBA loans are widely seen as the best form of small business loans for music schools, you have other options if you don’t qualify for SBA loans. These options often have higher rates, shorter terms, and larger payments. They include:

Bank term loans

Bank term loans often provide funding access as rapidly as do SBA loans, thus making them a good option for music teachers unable to obtain SBA loans. Both bank term and SBA loans permit fund usage for debt refinancing or working capital purchases, but their rates, prepayment penalties, repayment terms, and loan amounts will differ. Ask your lender about these loan aspects before signing any contracts.

Business lines of credit

Business lines of credit are loans of a maximum amount proportional to your credit score but usually lower than what you could get from a bank term loan. Business lines of credit further differ from bank term loans in another major way: They do not require that you use your entire loan. If anything, not using your entire business credit line may be better for your finances since you’ll only pay interest on the funds you actually use.

You can access your business line of credit as often as needed until you deplete it. Additionally, business credit lines often lack the collateral requirements common with other loan types. Learn more about business lines of credit by reading the SmartBiz Loans blog Small Business Lines of Credit Pros and Cons.

Business lines of credit may at first sound exactly like business credit cards, but the two are not quite the same. Both funding options are indeed revolving lines of credit, but only business credit card funds are reusable after you repay your loans. Business lines of credit also lack the spending rewards often available with business credit cards. Read more via the SmartBiz Loans blog Finding the Right Credit Card for Your Small Business.

Merchant cash advances

If your music school accepts debit or credit card payments, you may qualify for merchant cash advances (MCAs). Through MCAs, you will get a loan from a card provider, and you’ll pay your loan back by funneling a small portion of all your card transactions to the lender. Traditional installment-based payment plans are also available.

MCAs are extremely convenient, but they also have extremely high APRs. Read the SmartBiz Loans blog What You Need to Know About an MCA to learn more.

Why Choose SmartBiz Loans?

Need funding to rebuild your business? Don’t waste time going from bank-to-bank filling out multiple applications. SmartBiz helps you find the best financing for your unique needs whether that’s an SBA loan, Bank Term loan, or other financing.  About 90% of qualified applications we refer to banks are funded and our financial professionals are on hand to answer your questions. Discover if you’re pre-qualified here without impacting your credit scores** and read the SmartBiz 5-star customer service reviews on TrustPilot.

 *The information provided through SmartBiz Advisor, including the Loan Ready Score, is for educational purposes only. SmartBiz Advisor is not a financial or legal advisor as defined under federal or state law. Use of this information is not a replacement for personal, professional advice or assistance regarding your finances or credit history.

**We conduct a soft credit pull that will not affect your credit score. However, in processing your loan application, the lenders with whom we work will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and happens after your application is in the funding process and matched with a lender who is likely to fund your loan.

 What you need to know: The information provided through SmartBiz® University and the articles contained therein are for educational purposes only. Use of this information is not a replacement for personal, professional advice or assistance regarding your finances or credit history.