SBA 7(a) Assisted Living Acquisition Feasibility Study Case Study: Repricing a 10-Bed Licensed Home in Peoria, Arizona Under SOP 50 10 8.1

A 10-bed Arizona assisted living home on one acre in Peoria, marketed with its real estate at $2,300,000 on $268,000 of seller's discretionary earnings, tested against the SOP 50 10 8.1 rule that an acquisition must cover its debt 1.25 times on historical cash flow. At the asking price the loan covers 0.80x. Not feasible at the asking price; feasible as resized at $1,850,000 with 25 percent buyer equity, a $150,000 seller note on full standby and a buyer who holds the Arizona manager certificate, at 1.30x historical coverage.

Model study prepared by MMCG Invest | Michal Mohelsky, J.D., FMVA | October 1, 2026

MMCG concludes that the acquisition of the subject 10-bed assisted living home in Peoria, Arizona is not feasible at the asking price of $2,300,000 under SBA 7(a) financing governed by SOP 50 10 8.1. The historical cash flow, normalized for a replacement manager, covers the debt service on a 90 percent loan at 0.80x, against the 1.25x the SOP requires for an initial acquisition, and the gap cannot be closed with a projection because the SOP does not permit one. The acquisition is feasible as resized at a price of $1,850,000, or $185,000 per bed, with a 7(a) loan of $1,346,250, buyer cash of $498,750 and a $150,000 seller note on full standby, a structure that covers 1.30x on the last fiscal year and 1.21x in the transition year after closing, rising to 1.47x by the third year. The resized determination is conditioned on two items: the buyer holding the Arizona assisted living facility manager certificate at application, because Arizona issues a new license to the buyer rather than transferring the seller's and the home cannot operate between the seller's surrender and the buyer's issuance, and the buyer working in the home as the seller does, because the historical earnings include the seller's own caregiving hours and an absentee owner covers only 1.06x. The determination does not depend on any rate or occupancy improvement after closing.

This is an MMCG model study: a complete feasibility analysis performed on a real, publicly marketed business using public data, prepared to show lenders and borrowers how MMCG underwrites an SBA 7(a) acquisition of a licensed assisted living home under SOP 50 10 8.1. It is not a client engagement, MMCG has no relationship with the seller, the buyer or the listing broker, and the analysis does not represent an offer, an appraisal or a recommendation to buy the business. The listing was marked pending after the study began and may have closed on other terms; the analysis stands on the listed price and earnings. The historical operating statement is modeled from the listed revenue and earnings and from the operating pattern of Arizona assisted living homes, because the seller's financial statements are not public, and a client engagement would replace it with the seller's tax returns and the lender's quality of earnings work where required. Figures labeled MMCG assumption are underwriting inputs set by MMCG from industry benchmarks, and items that could not be verified from a primary source at the study date are listed in the Conditions and Limitations section rather than estimated silently.

The Project will operate as a licensed Arizona assisted living home providing supervisory, personal and directed care services to ten residents in a single-story residence on one acre in Peoria, Maricopa County, Arizona, under a new Arizona Department of Health Services license issued to the buyer's operating company at closing. The physical program comprises a converted single-family residence of approximately 4,200 SF with ten resident bedrooms, six of them private and four semi-private, four bathrooms with roll-in showers, a common living room, a dining room seating twelve, a residential kitchen, a laundry, a medication room, a manager's office and a covered patio and fenced yard on the one-acre lot, with parking for staff and visitors on the driveway and street. The home operates 24 hours a day with two caregivers on the day shift from 7:00 a.m. to 7:00 p.m. and one awake caregiver overnight, 36 paid caregiver hours per day, with the buyer, who holds the Arizona assisted living facility manager certificate, serving as the licensed manager and working one day shift five days a week as the seller does; a replacement manager salary of $60,000 is nonetheless charged in the lender's coverage test. The buyer will hold the real estate and the business in a single operating entity, since the real estate is the business's premises and 7(a) proceeds finance both. The home is positioned in the private-pay small-home segment of the northwest Phoenix market, in which licensed homes of ten or fewer residents compete with assisted living centers on price, staff ratio and a residential setting, at an average all-inclusive rate of $5,500 per month across the private and semi-private rooms and three directed care levels, against a CareScout 2025 median of $6,000 per month for assisted living communities in the Phoenix metro.

Marketing and Sales Strategy

The home's census is sustained through the placement agencies and senior living advisors who direct the majority of small-home placements in Maricopa County, on a referral fee basis carried in the marketing line, and through the hospital discharge planners and home health agencies serving Peoria, Glendale and Sun City. The buyer's first ninety days concentrate on retaining the seller's referral relationships and the existing residents' families through a transition letter, a meeting with each family before closing, and continuity of the caregiving staff, who are offered retention bonuses at closing. Ongoing acquisition runs through a listing on the state's assisted living home directory, a local search presence, and relationships with the memory care and skilled nursing operators in the area who discharge residents to a lower level of care. The waiting list is managed against the home's licensed capacity of ten, and the private rooms are priced to turn over at a premium.

Amenities

The subject serves northwest Maricopa County: Peoria, Glendale, Sun City and the surrounding communities within a 20-minute drive.

Source: U.S. Census Bureau, 2020 Census.

The Vintage 2025 population estimates, the 65 and over, 75 and over and 85 and over counts and the median household income for Peoria and Maricopa County were not pulled from QuickFacts and ACS table B01001 at the study date and are a disclosed limitation. The northwest Valley is one of the largest concentrations of retirees in the United States, anchored by the Sun City age-restricted communities, and the small-home segment that serves it is deep: Arizona licenses assisted living homes of ten or fewer residents as a distinct category, and the Phoenix metro's inventory of such homes numbers in the thousands. For an acquisition of an operating home with a stable census, the demand question is one of retention rather than capture, and the study tests it through the occupancy sensitivities rather than through a penetration model.

The subject competes in the licensed small-home segment, in which Arizona's assisted living homes serve ten or fewer residents and assisted living centers serve eleven or more. The relevant competitive evidence for an acquisition is the price other homes command, and the market in 2026 is split in two. Business-only listings, in which the operator leases the house, are marketed at $18,250 to $49,500 per bed. Listings that include the real estate are marketed at $150,000 to $230,000 per bed, and the subject's asking price of $230,000 per bed sits at the top of that range. The fallback anchor used in this study, BizBuySell listing 2355168, offers two side-by-side Phoenix homes with ten beds and their real estate at $1,500,000, or $150,000 per bed. The subject's one-acre lot and its single-building configuration justify a premium over the two-home package, but not the 53 percent premium the asking price implies.

MMCG's standing method surveys the published rates of at least five licensed homes within three miles of the subject from each home's own website. Those rates were not retrieved at the study date, and the subject's $5,500 average is benchmarked instead against the CareScout 2025 Phoenix metro median of $6,000 per month and the Arizona median of $6,250 for assisted living communities, which small homes in the northwest Valley typically undercut by 8 to 15 percent in exchange for a higher staff ratio and a residential setting. The rate survey is a disclosed limitation and a condition of a client engagement.

Three Arizona rules shape this acquisition more than the market does.

The license does not transfer. The Arizona Department of Health Services issues an assisted living home license to a specific licensee at a specific premises, and a change of ownership requires the buyer to obtain a new license; the seller must notify the Department at least 30 days before the change, there is no grace period under which the buyer may operate on the seller's license, and the buyer's manager must hold the assisted living facility manager certificate, which requires 2,080 hours of documented experience and an examination. The transaction schedule therefore runs the buyer's license application in parallel with the loan, with the Department's issuance timed to the closing date, and the lender's closing is conditioned on the issued license.

The home exceeds the six-resident safe harbor. A.R.S. 36-582 treats a residential facility serving six or fewer persons as a residential use for all local zoning purposes and requires no permit of it that is not required of a single-family residence; it also bars a new residential facility within a 1,200-foot radius of an existing one in a residential area, and the City of Phoenix applies a 1,320-foot spacing rule to group homes of six to ten residents while Mesa applies 1,200 feet. A ten-bed home is outside the six-person safe harbor, and the statute's scope is limited to facilities licensed, operated, supported or supervised by the Department of Economic Security's developmental disabilities division, so the zoning treatment of a ten-bed ADHS-licensed home in Peoria rests on the city's own code. The home is operating today, which establishes its use, and the lender's closing should be conditioned on a City of Peoria zoning verification letter confirming that the use is permitted or legally nonconforming at ten residents.

Medicaid is negotiated, not published. Arizona's long-term care Medicaid program pays assisted living homes at rates negotiated with its managed care contractors, which are not published, so a home's Medicaid revenue cannot be benchmarked from a fee schedule. The subject is modeled at 100 percent private pay on the listing's earnings; a client engagement would take the payer mix from the seller's census records.

The subject's last fiscal year is modeled from the listed revenue and earnings as follows.

The seller's discretionary earnings of $268,000 match the listing. The statement reflects the operating pattern of an owner-operated Arizona home: 36 paid caregiver hours per day less the seller's own day shift, caregiver wages at $1.00 above the Arizona minimum of $15.15, a food cost of about $11 per resident-day, and placement referral fees that are the dominant marketing expense in the segment. The coverage tests use normalized EBITDA of $208,000, which charges a $60,000 replacement manager against the seller's management role but not against the seller's caregiving hours; the absentee-owner sensitivity below charges both.

SOP 50 10 8.1 applies to loans receiving an SBA loan number on or after October 1, 2026. For an initial acquisition it requires debt service coverage of at least 1.25x on historical cash flow and does not permit the lender to rely on post-closing projections. The equity injection for an initial acquisition is at least 10 percent. Seller debt on full standby may count toward part of the injection. The business portion of the loan amortizes over no more than 10 years, while real estate amortizes over up to 25 years, unless special use real estate makes up at least 85 percent of the project value, in which case the whole loan may amortize over 25 years; senior care facilities are among the property types that exception was written for, but the subject's real estate is about 77 percent of the price, which is below the threshold. A lender-commissioned quality of earnings review is required when the business purchase price, excluding real estate, is $3,000,000 or more, which this transaction does not approach at any price.

The test below assumes the asking price, closing costs of $75,000 including the SBA guaranty fee, working capital of $50,000, licensing and transition costs of $25,000, a 10 percent injection, a real estate allocation of 77 percent of price and a variable rate of 9.75 percent (the Wall Street Journal prime rate of 7.00 percent plus 2.75 percent).

The asking price fails the test, and the gap is structural rather than marginal. At 1.25x the history supports debt service of $166,400, and with the 77/23 allocation between 25-year and 10-year money that supports a loan of about $1,405,000, against the $2,205,000 the asking price requires. Even if the whole loan amortized over 25 years, the $2,205,000 loan would carry debt service of $235,795 and cover at 0.88x. The asking price values the home at 8.6 times seller's discretionary earnings and $230,000 per bed, both at the top of the 2026 market for Arizona homes sold with their real estate, and the historical cash flow does not carry debt at that level.

The 7(a) loan carries annual debt service of $159,441 and historical coverage of 1.30x on the last fiscal year's normalized EBITDA. The SBA guaranty on a loan of this size is 75 percent, or $1,009,688, and the guaranty fee of about $35,400 is included in closing costs. The buyer's cash of $498,750 is two and a half times the required 10 percent injection of $199,500, so the seller note is not needed to meet the injection; it bridges part of the gap between the seller's price expectation and the debt the history supports, and it stays on full standby so that it carries no debt service in the coverage test. At $1,850,000 the home is priced at $185,000 per bed and 6.9 times seller's discretionary earnings, inside the range of Arizona homes sold with their real estate and above the two-home Phoenix package at $150,000 per bed.

The structure reflects the central consequence of SOP 50 10 8.1 for small assisted living acquisitions: the debt is sized on what the home has earned, and the buyer's equity, not the lender's loan, carries the difference between that figure and the seller's price. A buyer with less than $500,000 of cash cannot close the resized transaction; a buyer with more can reduce the seller note.

The post-closing projection assumes the buyer retains the census through the transition, raises rates 4 percent at each anniversary, and absorbs caregiver wage growth of 4 percent per year as the Arizona minimum rises to $15.65 in 2027. Occupancy is held at 92 percent in the transition year because a change of ownership and licensee produces some attrition, and returns to the historical 95 percent by Year 3.

The transition year covers at 1.21x, below the 1.25x historical test but above 1.0x with room, and coverage rebuilds to 1.36x and 1.47x as the census returns and rates escalate. The projection is presented for the lender's information; under SOP 50 10 8.1 the loan is sized on the historical 1.30x, not on these figures.

Occupancy is the binding risk in a ten-bed home: the loss of one resident is ten percent of census, and a run-rate occupancy of 85 percent, one resident below the historical level, reduces coverage below 1.0x. That is the arithmetic that makes retention of the seller's referral relationships and caregiving staff the first ninety days' work. The absentee-owner case shows that the resized transaction is feasible for an owner-operator who holds the manager certificate and works in the home, and is not feasible as a passive investment: charging the seller's caregiving hours as well as the manager salary reduces historical coverage to 1.06x.

Arizona's minimum wage is $15.15 per hour in 2026 and rises to $15.65 on January 1, 2027, and the budget carries caregiver wages at $1.00 above the floor with 4 percent annual growth. The May 2025 Phoenix-Mesa-Chandler wage release places the healthcare support occupational group at a mean of $20.29 per hour and personal care and service occupations at $21.56, so the small-home segment pays below the metro's institutional wage and relies on the owner's presence and the residential setting to retain staff. Maricopa County's property tax classification for a licensed assisted living home, and whether the parcel is assessed as Class 3 residential or Class 4 commercial, was not confirmed at the study date; the historical property tax of $9,000 is carried forward with 3 percent growth. The home is modeled at 100 percent private pay because Arizona's long-term care Medicaid rates for assisted living homes are negotiated with managed care contractors and not published.

The subject is eligible as a business licensed as an assisted living facility that provides healthcare services: directed care under the Arizona license includes medication administration and the oversight of residents who cannot direct their own care, which meets the SOP's test. Assisted living facilities are on SBA's list of special purpose properties, so the going concern appraisal is prepared by an appraiser with the required track record and allocates value across real estate, furniture and equipment, and intangible business value; the 77 percent real estate allocation used here is a modeling assumption that the appraisal replaces, and because it decides the 10-year versus 25-year amortization split and whether the 85 percent exception applies, the allocation is a credit decision. The buyer's equity injection of 25 percent exceeds the 10 percent minimum. The business purchase price of $425,500 is far below the $3,000,000 quality of earnings threshold. The loan's closing is conditioned on the buyer's new ADHS license and on a City of Peoria zoning verification letter.

The determination of feasible as resized is subject to the following conditions precedent:

The following items could not be verified from a primary source at the study date and are disclosed: the current status, listing identifier and closing terms of the Peoria listing and of BizBuySell listing 2355168; the verbatim text of A.A.C. R9-10-801 on supervisory, personal and directed care services and R9-10-806 on staffing and night staff; the City of Peoria's zoning treatment and spacing rule for assisted living homes of seven to ten residents; the published rates of five licensed homes within three miles from their own websites; the May 2025 Phoenix-Mesa-Chandler wages for home health and personal care aides and nursing assistants from the BLS data tool; the Maricopa County property tax class and total tax rate for the parcel; and the Vintage 2025 population, 65 and over, 75 and over and 85 and over counts and median household income for Peoria and Maricopa County.

This model study applies the methodology described on MMCG's assisted living feasibility study and SBA assisted living feasibility study pages. MMCG prepares assisted living feasibility studies for SBA 7(a), SBA 504, USDA, HUD Section 232 and conventional lenders nationwide, with engagements from $4,900 and delivery in 9 to 16 business days.