SBA 7(a) Feasibility Study Case Study: Acquiring a Specialty Retail Business and Its Washington Street Building in Columbus, Indiana Under Appendix 15, Not Feasible as Proposed and Feasible as Restructured

A buyer proposes to acquire a 22-year-old independent bicycle, fitness and outdoor retailer with a service department together with the 4,375 SF building it occupies at the north end of Washington Street in Columbus, Indiana, financed with a single SBA 7(a) loan, in a change-of-ownership transaction that SOP 50 10 8.1 Appendix 15 classifies as an Initial Acquisition and tests on historical, not projected, debt service coverage. The seller's statements show pre-tax income of $45,640 on $1,720,000 of sales in fiscal 2025; normalized under Appendix 15 for depreciation, interest, the seller's $120,000 salary, the $54,000 rent paid to the seller's own real estate entity and a one-time cost, and reduced for a $75,000 buyer's salary and the $29,384 of tax, insurance and repairs the buyer will carry as owner of the building, the business produced $151,256 of cash flow available for debt service in fiscal 2025 and $132,796 in fiscal 2024, $142,026 on the two-year average. The proposal, a $1,189,092 loan at 9.25 percent over 25 years with a 10 percent cash injection, costs $122,198 a year and is covered at 1.24x on fiscal 2025, 1.09x on fiscal 2024 and 1.16x on the average, below the 1.25x the Appendix requires on either basis. Restructured with a $150,000 seller note on full standby for the term of the loan, the 7(a) loan falls to $1,035,463 and $106,410 a year, and the historical coverage is 1.42x on fiscal 2025, 1.25x on fiscal 2024 and 1.33x on the average. Determination: not feasible as proposed; feasible as restructured, conditioned on the seller's tax returns reconciling to the normalized statements, an appraisal of the building at or above the $720,000 allocated to it, the lender's confirmation of the standby note's treatment under SOP 50 10 8.1, a transition agreement with the seller, and verification of the inventory at closing.

Model study prepared by MMCG Invest | Michal Mohelsky, J.D., FMVA | October 3, 2026

MMCG concludes that the proposed acquisition of the business and its building is not feasible as proposed and is feasible as restructured. The proposal fails the historical test that governs it. Under SOP 50 10 8.1 Appendix 15, a change of ownership that continues the seller's operation is an Initial Acquisition, and an Initial Acquisition must show historical debt service coverage of at least 1.25x measured on the last fiscal year or on the average of the last two, with projections permitted only where the special-use property is fully secured or where there is no continuity of operations, neither of which applies to a going-concern retailer bought with its inventory, its staff and its customer list. The seller's fiscal 2025 statements, normalized for the items the Appendix allows and reduced for the costs the buyer will carry, produce $151,256 of cash flow available for debt service; fiscal 2024 produces $132,796 and the two-year average $142,026. The proposed structure, a $1,189,092 7(a) loan at 9.25 percent over 25 years funding the $450,000 business price, the $720,000 building, $60,000 of working capital, the $31,214 upfront guarantee fee and $60,000 of closing costs after a $132,121 cash injection, costs $122,198 a year. Coverage is 1.24x on fiscal 2025, 1.09x on fiscal 2024 and 1.16x on the average, and the lender cannot choose a basis on which it passes.

Restructured with a $150,000 seller note on full standby for the term of the 7(a) loan, with interest accruing and no payment until the SBA loan is repaid, the 7(a) loan falls to $1,035,463, the upfront fee to $27,181 and the annual debt service to $106,410. Historical coverage is 1.42x on fiscal 2025, 1.25x on fiscal 2024 and 1.33x on the average, and the test is met on either basis the lender elects. The buyer's cash injection of $131,718 remains 10 percent of the project and the study does not count the standby note toward it. The building is tested separately and passes: an imputed market rent of $13 per SF on 4,375 SF, $56,875 a year, is 3.3 percent of sales against a specialty retailer's typical occupancy cost of 6 to 10 percent, so the business could pay a third party for the space and the real estate is not carrying the credit. The buyer's own projections, which carry sales growth of 3 percent and a $75,000 salary, show 1.45x in Year 1 rising to 1.61x in Year 3 on the restructured loan; the Appendix does not permit them to govern and the study presents them for information. The determination is conditioned on the seller's fiscal 2024 and 2025 federal returns reconciling to the normalized statements, an appraisal of the building at or above the $720,000 allocated to it, the lender's written confirmation of the standby note's treatment under SOP 50 10 8.1, a transition agreement under which the seller remains for ninety days, and a physical inventory at closing at or above $220,000 at cost.

This is an MMCG model study: a complete feasibility analysis of a retail business acquisition with real estate under SOP 50 10 8.1 Appendix 15, prepared to show 7(a) lenders, buyers and sellers how MMCG normalizes a seller's history, applies the Appendix's historical test, tests the real estate on an imputed rent and restructures a transaction that fails by a narrow margin. It is not a client engagement. The building is modeled on the published listing record of 1201 Washington Street, a 4,375 SF 1907 single-tenant retail and showroom building on 0.41 acres offered at $799,000, and the business and its financial statements are MMCG model statements constructed to illustrate the normalization; MMCG has no relationship with the building's owner, any broker, any tenant or any buyer, and the analysis does not represent an offer, an appraisal, a valuation of any business or a recommendation to buy any building. Figures drawn from the U.S. Census Bureau, the Columbus Downtown 2030 Strategic Plan and its press coverage, the Bartholomew County Auditor's tax rate cards, the Indiana Department of Local Government Finance, the Bureau of Labor Statistics, HUD, Columbus City Utilities and the Code of Federal Regulations are identified as such. Figures labeled MMCG assumption, MMCG estimate or model statement are underwriting inputs set by MMCG, 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. In particular, the market rent for a single-tenant Washington Street building, a recorded 2024 to 2026 sale of a comparable building, the primary text of SOP 50 10 8.1 Appendix 15 and its treatment of seller standby debt, and the Bartholomew County commercial permit and transfer costs were not confirmed from primary sources at the study date and are carried as stated assumptions.

The buyer will acquire and continue the operation of an independent bicycle, fitness equipment and outdoor retailer that has traded from the same Washington Street building since 2004, keeping its name, its five employees, its supplier accounts with two bicycle manufacturers and a fitness equipment distributor, its service department and its customer list, and will acquire the building from the seller's real estate entity in the same closing. The physical program is the existing 4,375 SF single-story building: a 3,000 SF sales floor and showroom with the storefront on Washington Street, a 900 SF service department with four repair stands, a fitting area and parts storage, and 475 SF of office, receiving and restroom, on a 0.41-acre lot with parking for eleven cars and a rear service door. The business operates six days a week with the owner-operator, a service manager, two sales and service staff and two part-time seasonal staff, five full-time equivalents plus the owner. The buyer will hold the business and the building in one operating company, which satisfies the occupancy test at 100 percent and keeps the loan outside the Eligible Passive Company rules, and will provide the personal guarantee the program requires. The transition agreement keeps the seller in the store for ninety days after closing to transfer supplier relationships, the service book and the fleet and institutional accounts. The Project is positioned as the city's full-service bicycle and fitness retailer on the main street the Columbus Downtown 2030 plan wants activated, in a city whose People Trail network and architecture tourism support a cycling and outdoor trade, with the service department as the recurring and online-resistant revenue the lender underwrites.

Marketing and Sales Strategy

The buyer changes nothing in the first year except what the seller already planned: the service department's online booking, a fitting program for the city's road and gravel riders, a fleet maintenance account program for Cummins, the hospital and the school district's athletic departments, and a winter fitness equipment season that already carries the store's fourth quarter. The seller's email list and the store's standing in the regional cycling clubs transfer under the agreement. The buyer's own additions, an e-bike program with the manufacturers' demo fleet and a used-bike trade program, are in the projections and not in the historical test.

Amenities

The subject building is modeled on the published listing record of 1201 Washington Street, a 4,375 SF single-tenant retail and showroom building built in 1907, classified by the listing platform as Class C, on 0.41 acres at the north end of Washington Street, offered at $799,000, or $182.63 per SF. The study allocates $720,000 to the real estate, a negotiated figure $79,000 below the asking price and $164.57 per SF, and conditions the determination on an appraisal at or above it, because no recorded 2024 to 2026 sale of a comparable Washington Street building was found and the asking price is the only price evidence. The building's age places it inside the Columbus Historic District's period but its individual contributing status was not verified; the buyer's transaction carries no rehabilitation and no historic credit.

Columbus is the seat of Bartholomew County, a city of 52,655 at the July 1, 2025 estimate and 50,474 at the 2020 Census, the headquarters of Cummins Inc., and a city whose Downtown 2030 Strategic Plan, presented July 21, 2025, found that average daily downtown visitors fell 22 percent and downtown employees fell 41 percent between 2019 and 2024 and set the activation of Washington Street as one of three primary objectives. The subject's trade is less exposed to that decline than a downtown restaurant's: a specialty bicycle and fitness retailer draws from the county and the region on destination trips, its service department draws its own repeat visits, and the city's People Trail network and its architecture tourism bring the cycling customer downtown. The study carries the plan's figures as the context for the sales history rather than as a demand driver, because under Appendix 15 the history, not the future, is the test.

The trade area for a specialty bicycle and fitness retailer is the county and the regional riding population rather than a ring. Bartholomew County's median gross rent of $958 and the city's of $1,157, HUD's fiscal 2026 Fair Market Rents of $1,257 for a one-bedroom and $1,415 for a two-bedroom, and the Columbus metropolitan area's mean hourly wage of $29.71 across all occupations in May 2025 against a national $33.54 describe a mid-income manufacturing city with a professional base at Cummins and the hospital, which is the specialty retailer's customer. The seller's statements are the demand evidence the Appendix recognizes: $1,640,000 of sales in fiscal 2024 and $1,720,000 in fiscal 2025, a 4.9 percent increase, at a 38.5 percent gross margin that reflects a mix of bicycles at the manufacturers' dealer margin, fitness equipment at a distributor margin, accessories and apparel at a higher margin and service labor at a very high one. The study tests the history for the items that would make it unrepresentative, a liquidation sale, a one-time institutional order, a change in the dealer agreements, and finds a $9,000 one-time legal cost in fiscal 2025 and nothing else; the manufacturers' dealer agreements are assignable with consent and the consent is a closing deliverable.

MMCG identified the specialty and mass-market supply for the subject's categories from the operators' pages and listings.

Competitor Number 1 Mass-market bicycle and fitness retail, Columbus and the regional centers The big-box sporting goods and general merchandise stores in Columbus and the Indianapolis metropolitan area 45 miles north carry entry-level bicycles and fitness equipment and set the price floor on the subject's lower-margin categories. The subject does not compete with them on entry price; it competes on brand, fit and service.

Competitor Number 2 Independent bicycle dealers, Indianapolis and Bloomington The nearest specialty competitors for the subject's manufacturer brands, 45 and 40 miles away, which capture the county's enthusiasts who shop in the larger market and which the subject's service department and fitting program are positioned to retain.

Competitor Number 3 Online bicycle, parts and fitness equipment sellers The structural competitor for parts, accessories and fitness equipment, against which the subject's service labor, fitting and warranty work are the online-resistant revenue. The Census Bureau's e-commerce share of retail sales reached 17.1 percent in the second quarter of 2026, and the subject's history already reflects it.

Competitor Number 4 Downtown Washington Street retail and service tenants The street's existing specialty tenants, which share the subject's foot traffic and the plan's activation program. A white-box storefront at 217 Washington Street asks $12 per SF, which with the subject's corner showroom frontage supports the $13 imputed rent the study carries.

No new specialty bicycle or fitness retailer was identified as announced or opened in Bartholomew County between 2024 and 2026.

SOP 50 10 8.1, in force for loans numbered on or after October 1, 2026, governs change-of-ownership transactions in Appendix 15. The transaction is classified first. An Initial Acquisition is the purchase of a business by a buyer who does not already own it; a Business Expansion is the purchase of a business by an existing business in the same or a similar line; an Owner Buyout is the purchase of a partner's interest; and an ESOP or Cooperative transaction is its own category. The buyer here is an individual forming a new operating company to acquire the business, so the transaction is an Initial Acquisition. The test that follows is historical: debt service coverage of at least 1.25x on the proposed debt, measured on the last fiscal year or on a two-year average, using the seller's cash flow normalized for the items the Appendix allows. A Business Expansion would be tested at 1.15x; the subject is not one. Projections may replace history only where the special-use property is fully secured by collateral or where there is no continuity of operations and the loan is underwritten as a startup; a going concern bought with its inventory, staff, dealer agreements and customer list continues, and the history governs. A Quality of Earnings report is required when the business purchase price reaches $3,000,000; at $450,000 it is not, and the lender's own reconciliation of the statements to the tax returns is the verification. Advisory and agent fees may not be counted toward the equity injection; the buyer's injection is cash.

The seller's fiscal 2024 and 2025 statements are model statements prepared for this study and reconcile to the model tax returns. The normalization adds back the non-cash and non-recurring items the Appendix allows, replaces the seller's compensation and the related-party rent with the buyer's actual costs, and arrives at the cash flow available for the proposed debt.

The two judgments in the table are the buyer's salary and the building's carrying cost. The buyer's salary of $75,000 is set from the Columbus metropolitan area's May 2025 wage data for retail sales supervisors and small-business managers and from the buyer's own personal financial statement; the sensitivity table shows the test at $90,000. The building's carrying cost replaces the $54,000 related-party rent with the costs the buyer will actually bear as owner: property tax of $15,884 on an assessed value of $620,000 at the City of Columbus taxing district's pay-2026 rate of 2.5619 per $100, below the 3 percent nonresidential cap; insurance of $7,500; and repairs and reserves of $6,000. The vehicle expense is left in the statements because the buyer will carry one. No addback is taken for the seller's family on the payroll because none is on it.

The lender underwrites the building as if a third party occupied it. The study carries an imputed market rent of $13 per SF on 4,375 SF, $56,875 a year, against the $12 ask for an 800 SF white-box suite at 217 Washington Street and the subject's larger, corner showroom frontage. At $56,875 the imputed rent is 3.3 percent of fiscal 2025 sales, against an occupancy cost of 6 to 10 percent of sales typical of specialty retail, so the business could pay a third party for the space with room to spare and the real estate is not the credit. The building's price of $720,000, $164.57 per SF, capitalizes the imputed rent at 7.9 percent before the owner's carrying costs, which is consistent with the market cap rate for retail of 7.4 percent and with a Class C single-tenant building in a secondary downtown. The appraisal is a condition because the asking price is the only comparable, and the study recommends that the lender obtain a going-concern allocation as well as a real estate value so that the $450,000 business price and the $720,000 building price are each supported.

The transaction is a 7(a) loan rather than a 504 project because the business, its inventory and its working capital are 40 percent of the proceeds and a 504 debenture finances only the real estate and long-lived equipment. A single 7(a) loan funds the business assets, the building, the working capital, the guarantee fee and the closing costs; the SBA guarantee is 75 percent because the loan exceeds $150,000; the maturity is 25 years because real estate is more than 51 percent of proceeds, $720,000 of $1,317,181 or 54.7 percent; and the interest rate is carried at 9.25 percent, the Wall Street Journal prime rate of 7.00 percent effective September 17, 2026 plus 2.25 percent, inside the program's maximum spread for a loan of this size. The fiscal 2027 upfront guarantee fee for a loan between $700,001 and $5,000,000 is 3.5 percent of the guaranteed portion up to $1,000,000, $27,181 on the restructured loan's $776,597 guaranteed portion, financed in the loan, and the lender's annual service fee is 0.55 percent of the outstanding guaranteed balance. The borrower occupies 100 percent of the building and the occupancy test of 13 CFR 120.131(b) is met without an Eligible Passive Company; holding the business and the building in one entity avoids the EPC lease and rent cap rules, and the study notes that a buyer who prefers a separate real estate entity may use one with the Operating Company as co-borrower, because the loan includes working capital. The equity injection is 10 percent of the total project in cash, $131,718, from the buyer's verified liquid assets; the seller's standby note is not counted toward it.

The restructure's instrument is a $150,000 note from the buyer to the seller, subordinate to the SBA loan, on full standby for the term of the 7(a) loan: no principal or interest payments until the SBA loan is repaid in full, with interest accruing at a stated rate and the note documented on SBA's standby form. Because no payment is due during the term, the note's debt service is zero in the Appendix 15 test and the 7(a) loan it displaces is the saving: $153,629 less loan, $4,033 less upfront fee and $15,788 less annual debt service. The study does not count the note toward the buyer's injection and does not rely on any partial-standby treatment. The lender's written confirmation of the note's treatment under SOP 50 10 8.1, including the standby form, the accrual terms and whether any portion may be counted toward the injection, is a condition, and the seller's willingness to carry the note is the first commercial step.

The building is an existing retail use on Washington Street inside the city's downtown zoning, and the transaction carries no change of use, no construction and no permit beyond a zoning compliance letter at $10 under the City's planning fee schedule. The transfer items are commercial: the assignment of the two bicycle manufacturers' dealer agreements with the manufacturers' consent, the assignment of the fitness equipment distributor account, the transfer of the service department's warranty authorizations, the assignment of the store's domain, email list and online booking system, a non-compete from the seller, and the ninety-day transition agreement. Columbus City Utilities' commercial accounts transfer at closing with no system development charge because the service exists. The study carries a Phase I Environmental Site Assessment under ASTM E1527-21 in the closing cost because the building dates from 1907 and the lender's collateral is the real estate.

The building's utilities are the seller's history, $14,000 in fiscal 2025, carried forward. Property tax is carried at $15,884 on an assessed value of $620,000, an MMCG estimate of the assessor's market value-in-use after the sale, at the City of Columbus taxing district's pay-2026 rate of 2.5619 per $100, up from 2.5430 for pay 2025; the 3 percent cap on nonresidential property does not bind at that rate. Insurance is carried at $7,500 for the building and $11,000 for the business's liability, inventory and contents. The Phase I is in the closing cost, and the building's age places a lead paint and asbestos survey inside the lender's collateral review.

Source: U.S. Census Bureau; Bureau of Labor Statistics; City of Columbus, Downtown 2030 Strategic Plan; Bartholomew County Auditor; LoopNet; MMCG model statements.

Under Appendix 15 the seller's two years of sales are the demand evidence, and the trade area figures are the context in which the lender reads them.

Location: Washington Street, Columbus, IN 47201 Size in SF (Gross): 4,375 (existing building)

Source: MMCG

The project carries no construction and no reserve beyond working capital because the business continues without interruption and the Appendix's test is on history, not ramp. The business price of $450,000 is 2.97 times the seller's normalized cash flow before the buyer's salary and the building's carrying cost, and 0.26 times sales, inside the range at which independent specialty retailers trade; the lender's business valuation is a condition. The proposal is carried at $1,321,214 with a $31,214 upfront fee on a $1,189,092 loan and a $132,121 injection.

Loan Assumptions (restructured)

The transaction is an eligible change of ownership under 13 CFR 120.202, financing the purchase of a going concern and its real estate by a new owner who will operate it, with the borrower occupying 100 percent of the building under 120.131(b). The loan is within the $5,000,000 limit and the guaranteed portion within the $3,750,000 cap of 120.151. Under SOP 50 10 8.1 Appendix 15 the transaction is an Initial Acquisition tested at 1.25x historical debt service coverage on the last fiscal year or the two-year average, the test is met as restructured on both bases, projections are not used, no Quality of Earnings report is required below $3,000,000, and the equity injection is cash with no advisory or agent fee counted. The seller's standby note is documented on SBA's form and its treatment confirmed by the lender in writing. The fiscal 2027 upfront fee of 3.5 percent of the guaranteed portion and the 0.55 percent annual service fee are carried. The buyer's personal guarantee and the lender's collateral in the real estate, inventory, equipment and intangibles are carried. SBA may require a feasibility study under 120.160(b) and the lender has requested one because the buyer is new to ownership and the real estate is more than half the loan; the study's role in an Appendix 15 file is to normalize and explain the history, not to replace it.

The buyer's projections carry sales growth of 3 percent a year from the fiscal 2025 base, the fiscal 2025 cost structure with payroll escalating 3 percent, the buyer's $75,000 salary escalating 3 percent, and the owner's carrying cost of the building. They are presented because the lender's credit memorandum will include them and because they show the direction of the business under the buyer's plan; they do not govern the Appendix 15 test.

At the fiscal 2025 cost structure the business's fixed operating cost, payroll, the buyer's salary, utilities, insurance, marketing, shop supplies, administrative, vehicle and other, together with the building's carrying cost, is $471,384, and its variable cost of goods and card fees is 63.8 percent of sales, so each dollar of sales contributes 36.2 cents. Thresholds are stated as a share of fiscal 2025 sales of $1,720,000.

The business covers its operating cost at 76 percent of its own sales and the restructured debt at 93 percent. The $150,000 standby note is worth about three points of break-even sales at each test, and as proposed the 1.25x threshold sits above the fiscal 2025 actual, which is the failure in one line. That is the shape of a sound Appendix 15 credit: the seller's history clears the proposed debt with a margin the buyer's first year of ownership can absorb, and the structure is sized to the history rather than to the buyer's plan.

The sensitivity cases are run on the fiscal 2025 normalized cash flow, which is the basis the lender is most likely to elect, and are stated for both structures.

The restructured transaction passes the historical test on all three bases and holds above 1.25x with a $90,000 buyer's salary and a 100 basis point rate increase. A 10 percent sales decline at the fiscal 2025 cost structure falls to 0.84x, which is the risk of a specialty retailer's first year under new ownership and the reason the transition agreement and the dealer consents are conditions. As proposed, the transaction fails the test on every basis and holds above 1.0x only at the base, the average, the salary and the rate cases.

The determination of not feasible as proposed and feasible as restructured is subject to the following conditions precedent on the restructured transaction:

The following items could not be verified from a primary source at the study date and are disclosed: the primary text of SOP 50 10 8.1 Appendix 15 on the coverage floors, the Quality of Earnings threshold and the treatment of seller standby debt, in place of which the study carries the figures as reported by SBA lenders and advisers and conditions the determination on the lender's confirmation; a recorded 2024 to 2026 sale of a comparable Washington Street building, in place of which the study carries the asking price and an imputed rent; a published market rent for a single-tenant Washington Street building, in place of which the study carries $13 per SF against a white-box ask of $12; the subject building's contributing status in the historic district; the Bartholomew County transfer and recording costs; and the detailed May 2025 Columbus wages for retail supervisors, in place of which the study carries the metropolitan area's all-occupations and food service means and the buyer's own statement.

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