Model Case: Full-Service Restaurant Initial Acquisition in Westchester County, New York, SBA 7(a) Under SOP 50 10 8.1 Appendix 15

A model feasibility and valuation-support case built only from public data. The restaurant, seller and buyer are hypothetical; no client file or engagement data is used. The case follows the house format with the changes an acquisition requires: at a glance, determination, the Appendix 15 test table, the transaction and its diligence, the historical cash flow and the lender's DSCR, the post-close projection, the valuation cap, sensitivities, collateral and conditions. Figures are as of October 9, 2026. Part of the restaurant feasibility study cluster; format detail on the restaurant acquisition feasibility study page, program detail on the SBA 7(a) feasibility study page, and the state frame on the New York feasibility study page.

The acquisition is feasible as proposed, subject to the conditions at the end of this page. Under Appendix 15 the test is historical: EBITDA for the last fiscal year or the two-year average, after justified adjustments and a replacement wage for the departing owner, divided by the post-transaction debt service, at a 1.25x floor, with projections barred. The subject's trailing two years show $2,580,000 and $2,650,000 of sales and $405,000 and $444,000 of seller's discretionary earnings; after a $76,000 replacement manager wage the two-year average EBITDA is $348,500 and FY2025 is $368,000. The $1,055,435 loan at the 10.00 percent cap on the ten-year amortization costs $167,372 a year, so coverage is 2.08x on the average and 2.20x on the last year. The floor does not bind. On this structure the floor would bind only if the price exceeded 3.68 times SDE, which no restaurant benchmark supports: BizBuySell's five-year restaurant multiples run 1.34x to 2.53x in the interquartile range and 2.15x to 2.18x on average, We Sell Restaurants reports 2.41x for the first half of 2026, and the IBBA all-industry median for the $1 million to $2 million band is 3.0x to 3.3x. At $1,050,000 the deal is priced at 2.47x the average and 2.36x the last year, inside the restaurant band and below the all-industry curve.

What binds is elsewhere. First, the valuation. SOP 50 10 8.1 requires a lender-ordered independent valuation from an ASA, CBA, ABV, CVA or BCA appraiser, and caps total debt at the appraised value; a price above value is made up with equity. If the appraiser lands at $950,000, 2.24x the average SDE, the loan falls to $947,598, the equity rises to $222,276, 19.0 percent of the project, and the buyer brings about $105,000 more cash. The at-a-glance table shows both columns because the valuation, not the DSCR, is where this deal is decided. Second, the earnings. Below $3,000,000 Appendix 15 does not mandate a Quality of Earnings report or a cash proof, but the lender must tie the earnings to IRS transcripts, and a full-service restaurant's SDE can fail after closing on unreported tips, cash-sales leakage, rejected add-backs and sales tax successor liability. The sensitivity table carries a $130,000 haircut to verified cash flow and the deal still covers 1.47x; the conditions require the cash proof anyway. Third, the ten-year amortization and the lease: the business-portion term is capped at ten years, and the lease including borrower-only options must run at least that long with an assignment and a landlord's waiver.

The subject is an eleven-year-old independent full-service restaurant with a full bar in a Westchester County village, 4,200 SF and 140 seats on a lease with an assignment clause, operated by its founder, who will stay 24 months under a consulting agreement. The price allocates under IRS Form 8594: inventory in Class IV at cost, FF&E and leasehold improvements in Class V at appraised value, the liquor license, the covenant not to compete and the workforce in Class VI, and the balance in Class VII goodwill, which is most of it. Used restaurant equipment brings 10 to 30 cents on the dollar at auction and 50 to 70 cents in a private sale, so the lender's collateral is the guaranty and the cash flow, which is the position every restaurant acquisition takes.

New York's transfer path is the one Appendix 15 does not write but the closing depends on. The buyer files for the on-premises liquor license transfer with the State Liquor Authority after a 30-day notice to the municipality, and may operate from closing under a Temporary Retail permit at $640 per bar for 180 days with $96 thirty-day extensions, provided the premises operated under a license within 30 days of filing; full SLA processing is reported at 24 to 26 weeks. The buyer files Form AU-196.10 with the Department of Taxation and Finance by registered mail at least ten days before paying or taking possession, and does not pay if a claim issues, which is the state's successor-liability control for sales tax. The landlord consents to the assignment, replaces the guaranty and signs the estoppel and the lender's waiver. The buyer's accountant reconciles the point-of-sale system to the bank deposits and the sales tax returns for the trailing twelve months and each of the last two fiscal years, compares reported tips to the Form 8027 eight percent allocation line, and checks that the seller's earnings do not include the Section 45B FICA credit, which is a tax item and not operating cash. Each of these is a condition.

The SDE margin of 16.2 percent sits at BizBuySell's 16.8 percent median owner earnings for sold restaurants, and the sales of $2.65 million are well above the $718,271 median revenue of the restaurants that sell, which is the point about the size band: few restaurants trade at $1 million, and the ones that do are the ones with volume. The add-backs the lender accepts are the categories SOP 50 10 8.1 names for a Quality of Earnings report, non-recurring items, owner compensation, related-party transactions, deferred maintenance and cash-versus-accrual differences, documented and tied to the transcripts; unreported cash and unreported tips are never add-backs.

The projection is not the Appendix 15 test, which is historical; it is the lender's view of the business under new ownership and the basis for the sensitivities. It carries sales flat to trailing in year 1 with 2.5 percent growth after, food and beverage at 31 percent, labor at 30.5 percent excluding the owner, the $76,000 manager wage, occupancy of $192,000 on the executed lease (7.2 percent of sales against the NRA full-service median of 5.7 percent and 6.0 percent urban), and 3 percent cost escalation.

The projected year-1 EBITDA of $367,950 reconciles to the FY2025 historical figure of $368,000, which is the check that the projection carries the business as it is rather than as the buyer hopes.

On the post-close statement with sales scaled and the fixed lines held, the business covers debt service at $1,925,946 of sales (27.3 percent below trailing), 1.15x at $2,010,384 (24.1 percent below) and 1.25x at $2,066,677 (22.0 percent below). Stated the other way, which is how Appendix 15 reads it: at $167,372 of debt service the 1.25x floor requires $209,215 of EBITDA and $285,215 of SDE after the $76,000 wage, so the floor binds at 3.68x SDE at this price. An acquisition priced inside the restaurant band clears the historical test with room; the test the lender has to run is whether the SDE is real.

All rows start from the proposed structure unless labeled otherwise.

A 20 percent post-transition sales loss, which is the kind of attrition an owner-operated neighborhood restaurant can suffer when its founder leaves, still covers above the floor, and the $130,000 earnings haircut covers 1.47x. The sensitivity that matters is not on the table because it is not a projection: a valuation below price, which moves the equity line rather than the coverage line. The structure is robust to operations and exposed to the appraisal and the transcripts.

Collateral is $1,050,000 of price against perhaps $150,000 of orderly-liquidation value in equipment and furnishings, a leasehold the lender cannot sell, a liquor license that is not a quota asset in New York, and goodwill. The loan is unsecured in substance and carried by the guaranties. The credit record for the category is better than the format's: on the FY2018 to FY2019 cohorts, change-of-ownership 7(a) loans charged off at 6.88 percent against 9.83 percent for all other 7(a) loans, while seasoned FY2015 to FY2019 originations in accommodation and food service charged off at 7.09 percent by count, and Forvis Mazars reported a 10.6 percent charge-off frequency for restaurants over twelve years against 3.9 percent for all 7(a) loans. BizBuySell's Q2 2026 report shows the resale market thinning, with restaurant transactions down 12 percent on the year, the median price down 12 percent to $205,000, 90 percent of buyers expecting seller financing and 29 percent of owners planning to offer it, which is why the standby seller note is modeled at the half of the injection that Appendix 15 permits.

Prepared by Michal Mohelsky, J.D., FMVA, Practicing Affiliate of the Appraisal Institute. Model case aligned with SBA SOP 50 10 8.1 Appendix 15, under USPAP discipline. MMCG Invest, LLC, 27 Maiden Lane, Suite 625, San Francisco, CA 94108.