Model Case: 120-Seat Independent Full-Service Restaurant in Leased Space, Cypress, Harris County, Texas, SBA 7(a)

A model feasibility case built only from public data. The premises, borrower and concept are hypothetical; no client file or engagement data is used. The case follows the house format: at a glance, determination, program eligibility, site and regulatory pathway, market analysis, full cost table, operating assumptions, ten-year pro forma, DSCR by year, the first-year ramp, break-even, sensitivities, collateral and conditions. Figures are as of October 9, 2026. Part of the restaurant feasibility study cluster; format detail on the independent full-service restaurant feasibility study page, program detail on the SBA 7(a) feasibility study page, and the state frame on the Texas feasibility study page.

The project is not feasible as proposed. Building a 5,000 SF full-service restaurant out of a cold shell at $450 per SF, inside the $250 to $500-plus range that contractor guides quote for 2026 and below the $350 to $550 quoted for raw shell in the highest-cost markets, costs $2,250,000 before equipment, and with $400,000 of kitchen equipment and FF&E, design, signage, pre-opening, inventory, working capital, contingency, capitalized interest and the FY2027 guaranty fee the project reaches $3,416,474. At the 10 percent equity that the SOP sets as the start-up minimum, the $3,074,826 loan at the 10.00 percent rate cap on the ten-year maturity that applies to leasehold improvements and equipment costs $487,609 a year, 20.4 percent of stabilized sales. The restaurant earns $204,516 at stabilization, 8.6 percent of sales after a new-center rent of $32 per SF, and covers 0.42x. A 25-year maturity, which the SOP allows only where 51 percent or more of proceeds go to real estate and which leasehold improvements do not satisfy on MMCG's reading, would still cover only 0.61x. No sales level inside the public benchmarks closes the gap: 1.15x needs $2,869,394 of stabilized sales in year-1 dollars, $574 per SF and $23,912 per seat, against the $250 to $325 per SF that the trade's rule of thumb associates with a 5 to 10 percent net margin.

The project is feasible as resized, subject to the conditions at the end of this page. The resize keeps the concept, the seat count and the trade area and changes the space: a second-generation restaurant endcap in an established grocery-anchored center, with the hood, grease interceptor and walk-in in place, refit at $150 per SF with a $25 per SF landlord allowance, and $325,000 of equipment and FF&E rather than $400,000. Total cost falls to $1,527,442 including a $135,000 reserve, equity rises to 20 percent, and the $1,221,954 loan costs $193,779 a year, 8.1 percent of stabilized sales. Base rent falls from $32 to $23 per SF, which puts occupancy at 6.7 percent of sales against the National Restaurant Association's 5.7 percent full-service median. Stabilized DSCR is 1.36x in year 3 and 1.27x in year 2; year 1 is 0.63x, which the reserve carries. The cushion is thin: 1.15x holds down to sales 3.1 percent below plan and 1.00x down to 5.3 percent below, and a 10 percent sales miss takes coverage to 0.69x. That is the arithmetic of an independent full-service start-up with a bar on a ten-year note, and the conditions are written around it.

A 15 percent equity structure was tested and covers 1.27x at stabilization with a 2.0 percent cushion to 1.15x; the SOP minimum of 10 percent covers 1.20x with a 0.9 percent cushion. The resize carries 20 percent because the collateral is equipment and a lease, the borrower has no operating history, and the lender's exposure on a 722511 start-up is the sector's 4.2 percent cumulative charge-off record.

A 504 loan was considered and rejected: the borrower does not own the real estate and the working items are 504-ineligible. USDA Business and Industry does not apply inside the Houston urbanized area.

Cypress is an unincorporated community in northwest Harris County along the US 290 corridor, inside the Houston MSA. Harris County's population is about five million by the Census Bureau's Vintage 2024 estimate, and the Cypress-Fairbanks area is among the county's fastest-growing suburban submarkets. The model case fixes the submarket and the center type, not the address: as proposed, a 5,000 SF endcap in a new retail center on a suburban arterial delivered as a cold shell; as resized, a second-generation restaurant endcap in an established grocery-anchored center in the same trade area, with the kitchen infrastructure of the prior tenant in place.

Texas counties have no zoning authority, so there is no zoning approval in unincorporated Harris County; the development pathway is a Harris County development permit and certificate of occupancy through the county engineer, fire code compliance through the Harris County Fire Marshal, and a food establishment permit through Harris County Public Health. Alcohol requires a Mixed Beverage Permit from the Texas Alcoholic Beverage Commission with a food and beverage certificate, and the local-option status of the justice precinct must be wet for mixed beverages; both are conditions. Texas levies a 6.7 percent mixed beverage gross receipts tax on the permittee, which the model carries as an operating cost of $39,967 at stabilization, and an 8.25 percent mixed beverage sales tax and 8.25 percent sales tax on the customer, which pass through. Texas has no state income tax; the franchise tax applies above the no-tax-due threshold.

Labor rules are the federal floor: $7.25 minimum, a $5.12 tip credit and a $2.13 cash wage for tipped employees under the DOL Wage and Hour Division's table dated July 1, 2026, which is why the staffing table below carries servers at $2.13 and the FICA on reported tips as a separate line; the Section 45B credit on that FICA is taken below the line and does not enter EBITDA. The 2025 federal tax law left the 45B credit unchanged and added a separate W-2 reporting requirement for qualified tips from tax year 2026. Workers' compensation is elective in Texas; the model carries a 12 percent burden on wages for payroll taxes, workers' compensation and benefits as a composite.

Occupancy is the decisive site variable. Cushman and Wakefield's Q2 2026 Houston Retail MarketBeat reports an asking rent of $21.52 per SF, up 6.2 percent on the year, against $25.65 nationally with 6.0 percent vacancy. The model carries $23.00 per SF NNN with $7.00 of NNN charges for the second-generation endcap and $32.00 plus $9.00 for the new-center cold shell, both model assumptions on the published average, with 3 percent escalation. The tenant improvement allowance is $25 per SF as resized, inside the $10 to $30 broker range for second-generation space, and nil as proposed, because the cold-shell allowance of $80 to $250 per SF that restaurant tenants negotiate is amortized into the higher rent.

Sector backdrop. The National Restaurant Association projects $1.55 trillion of 2026 sales with 1.3 percent real growth and reports that 42 percent of operators were unprofitable in 2025; its 2025 Restaurant Operations Data Abstract puts full-service payroll and benefits at a median of 36.5 percent of sales (34.2 percent for profitable operators, 42.9 percent for unprofitable ones), full-service food and beverage at 32.0 percent, occupancy at 5.7 percent (6.0 percent urban) and median pretax income at 2.8 percent. Restaurant365's mid-year 2026 survey found 87 percent of operators reporting food cost increases in the first half, while Black Box Intelligence chain traffic was negative in every month from January through May 2026 and casual dining traffic ran 1.9 percent below the prior year across November 2025 to January 2026. Black Box's unit-closure analysis finds 9 percent of full-service units at risk, defined as 2025 sales at 70 percent or below of their peak. The closure count is the Texas frame: restaurantdata.com recorded 8,171 closures across the United States and Canada in the first half of 2026, 47.9 percent of them independents, with Texas the leading state at 1,039. The CPI for food away from home ran 3.4 percent and BLS average hourly earnings for NAICS 722 stood at $21.89 in July 2026, up about 3 percent on the year.

Credit record. Full-service restaurants (NAICS 722511) are the largest restaurant category in 7(a) lending, with an average loan of about $528,000 and a median at approval of $251,000. The SBA Loan Index reports a 4.2 percent cumulative charge-off rate for Accommodation and Food Services on FY2010 to 2026 approvals, with seasoned all-industry cohorts at 5.5 to 6.8 percent and a median time to charge-off of 50 months; Windsor Advantage's FY2015 to FY2020 tabulation puts 722511 at 3.69 percent (683 of 18,521 loans). The academic record is older but points the same way: Parsa and colleagues found a 26.16 percent first-year and 59.74 percent three-year failure rate among Columbus restaurants, and Luo and Stark a 17 percent first-year rate with a 4.5-year median lifespan. A start-up independent is the exposure those figures describe.

Trade area and competition. A neighborhood full-service restaurant trades on the households within a ten-minute drive, the daytime employment that feeds lunch, and the center's own traffic. The study for a fixed address would report the drive-time population and income, the household growth that the Cypress-Fairbanks submarket has recorded, the center's anchor and co-tenancy, and a census of every full-service competitor within three miles by category, seat count and price point, with the pipeline. For the model case these are conditions. The sales forecast is built from capacity rather than from a site: 120 seats, 360 operating days, 210 covers a day (about 60 at lunch and 150 at dinner, 1.75 turns of the room), and a $29.75 average check including beverage in year-1 dollars, with alcohol at 25 percent of sales. That is $2,249,100, $450 per SF and $18,743 per seat, above the $250 to $325 per SF that the trade's rule of thumb associates with a 5 to 10 percent net margin and inside the "high profit" band above $350. The forecast is a model assumption; Toast publishes a 19.3 percent average tip for full service but no average check, and no public cover-count benchmark for independents exists. The sensitivities test the check at $27.75 and sales at 10 and 20 percent below plan, and the conditions require the concept, the menu pricing and the operator's record to support the forecast before the loan is sized.

No institutional 2026 restaurant cost guide (RSMeans current, Cumming, Rider Levett Bucknall, Turner and Townsend, JLL) publishes a usable public figure, so both cost tables rest on contractor-published ranges and the executed bids are a condition. The 7(a) loan funds the working items that a 504 loan cannot, which is why the equity is a share of the whole project rather than of a real estate project.

Payroll is built from a staffing plan for 120 seats at Texas wage rules, with the owner as general manager inside the plan.

The general manager salary is anchored to the BLS Occupational Employment and Wage Statistics median for food service managers of $69,390 (May 2025) trended to a 2027 opening; hourly rates sit around the BLS NAICS 722 average of $21.89 for cooks and below it for support positions, and the FTE counts are a model assumption. A 12 percent burden covers payroll taxes, workers' compensation and benefits, and employer FICA on reported tips is modeled at 7.65 percent of a 19.3 percent tip on food sales and on half of bar sales. Total labor is $796,511 at stabilization, 33.4 percent of sales, below the NRA full-service median of 36.5 percent because of the Texas tip credit and within a point of the 34.2 percent that profitable operators report; the sensitivity table moves it up 10 percent. Year-1 wages are 90 percent of the stabilized plan and year-2 wages 97 percent, which is training inefficiency against lower volume.

Food and beverage cost is 32.0 percent of sales, the NRA full-service median. Base rent is $23.00 per SF NNN with $7.00 of NNN charges, $150,000 in year 1 and 6.7 percent of sales at stabilization; utilities $66,000; insurance for property, general liability and liquor liability $32,000 as a model assumption with no public premium benchmark; card processing 2.4 percent; supplies, smallwares, linen and cleaning 2.0 percent; marketing 2.0 percent; repairs and maintenance 1.5 percent; administrative, accounting, software and licenses 2.0 percent; the Texas mixed beverage gross receipts tax 6.7 percent of alcohol sales; and a replacement reserve of 1.0 percent. Prime cost is 65.4 percent at stabilization, inside the 60 to 65 percent that Restaurant365 gives as the target band and below the 68.5 percent that the NRA medians imply. Check and costs escalate 3 percent a year. Stabilized EBITDA margin is 11.0 percent, against a 2.8 percent median pretax income for full service that sits after rent, depreciation, interest and owner compensation.

The proposed structure never covers: its cumulative shortfall over ten years is $2,800,845, and on a 25-year maturity, which the leasehold improvements do not qualify for, it still covers 0.61x at stabilization. The difference between the two structures is $55,000 a year of rent and $293,830 a year of debt service, and the second is the one that decides the case.

The ramp is a stated assumption, because no SBDC, academic or point-of-sale source publishes a month-by-month curve for new independent full-service restaurants: 70 percent of stabilized covers in months 1 to 3, 85 percent in months 4 to 9 and 95 percent in months 10 to 12, an 83.75 percent year, with wages at 90 percent of the stabilized plan throughout. On that curve the restaurant loses money in its first quarter and covers from its fourth.

The year-one shortfall is $71,674 and the $135,000 reserve carries it with about three months of debt service to spare. A slower ramp of 70, 90 and 100 percent of stabilized sales by year, which the sensitivities test, takes year 1 to -0.23x and the shortfall to about $238,000, which exhausts the reserve; the reserve is sized to the base ramp, and the opening plan is a condition.

On the stabilized year-3 statement with sales scaled and the fixed lines held, the resized project covers debt service at $2,128,802 of stabilized sales in year-1 dollars (5.3 percent below plan), reaches 1.15x at $2,179,414 (3.1 percent below) and 1.25x at $2,213,156 (1.6 percent below). As proposed, break-even is $2,742,036 and 1.15x needs $2,869,394, 27.6 percent above plan. On a 25-year maturity the resized project would hold 1.15x down to $2,058,203, 8.5 percent below plan, which is the measure of what the ten-year leasehold-improvement rule costs an independent start-up.

All rows start from the resized base unless labeled otherwise.

Sales are the binding variable and the operating lines are close behind: a 10 percent sales miss, a three-point food move or a 10 percent labor move each takes the resized project below 1.0x at stabilization on its own. The rent and the equity share are the absorbable risks. The 25-year row is the one a borrower will ask about, and the answer is that the SOP's 51 percent real estate rule is not met by leasehold improvements, so it is not available.

The lender's collateral is $325,000 of kitchen equipment and furnishings, a leasehold, inventory and the guarantors. Used restaurant equipment brings 10 to 30 cents on the dollar at auction and 50 to 70 cents in a private sale; leasehold improvements belong to the landlord at lease end and have no value to the lender on default. On the resized loan of $1,221,954 the discounted collateral is on the order of $100,000, and the loan is a cash-flow loan secured by the guaranty, which is the usual position for a 722511 start-up and the reason the equity is set at 20 percent rather than the 10 percent minimum. An assignment of the lease and a landlord's waiver are conditions; without them the SOP's lease-term rule becomes mandatory rather than advisory.

Prepared by Michal Mohelsky, J.D., FMVA, Practicing Affiliate of the Appraisal Institute. Model case aligned with SBA SOP 50 10 8.1, under USPAP discipline. MMCG Invest, LLC, 27 Maiden Lane, Suite 625, San Francisco, CA 94108.