Independent Full-Service Restaurant Feasibility Study for SBA 7(a) and Bank Loans

An independent full-service restaurant is the highest-failure format a lender finances and the one where the build-out decides the file before the first guest is seated. MMCG Invest prepares independent restaurant feasibility studies for SBA 7(a), SBA 504 and conventional financing that build the sales projection from seats, turns and check against the trade area, apply the published full-service cost medians rather than the sponsor's budget, test the build-out in three space-condition scenarios, match the lease to the loan, and report the debt service coverage ratio (DSCR) by year with the reserve that carries a start-up to the year it first clears the floor.

An independent has no Item 19, no brand loss record and no franchisor cost lines, so the study supplies all three from the public record. The record is sobering. The Cornell study of Columbus, Ohio restaurants found 26.16 percent of independents closing in the first year, 19.23 percent in the second and 14.35 percent in the third, a cumulative 59.74 percent; a later study of 81,000 full-service restaurants in BLS microdata found a 17 percent first-year rate, below the 19 percent for other service start-ups, and a median lifespan of 4.5 years. The 90 percent figure that circulates traces to an American Express advertisement and has no data behind it. The National Restaurant Association's 2025 operations data put full-service median labor at 36.5 percent of sales and food and beverage at 32.0 percent, a prime cost of 68.5 percent, median occupancy at 5.7 percent, and median pre-tax income at 2.8 percent; 42 percent of operators were not profitable in 2025. Black Box Intelligence flags 9 percent of full-service chain units as at-risk, with 2025 sales at or below 70 percent of their 2019 to 2025 peak, against 4 percent for limited service.

The general method, the SOP 50 10 8.1 spine and the market backdrop are on the restaurant feasibility study hub. This page covers what changes when the operator is independent and the space is leased.

The swing variable in an independent file is the condition of the space. Published 2026 contractor ranges run $125 to $250 per square foot for verified second-generation restaurant space, $200 to $400 for a conversion from another use, and $250 to $500 and above for gray or cold shell, with Bay Area raw shell at $350 to $550, before kitchen equipment, furniture, signage and pre-opening. On a 5,000 square foot, 120-seat restaurant that is $750,000 to $2.25 million of construction alone. No institutional cost guide publishes a current restaurant figure free of charge; the RSMeans model posts 2019 data for a ground-up restaurant at about $200 to $220 per square foot, and its cost index rose about 3.5 percent through 2025. The study presents three scenarios, second-generation, conversion and cold shell, and states which one the lender is being asked to finance.

The landlord's contribution is part of the stack. Tenant improvement allowances for restaurant space run about $80 to $180 per square foot on a seven to ten year lease by broker reporting, and $10 to $30 for second-generation retail, with the allowance amortized into rent. Only the second-generation scenario clears a 1.25 times DSCR on a ten-year leasehold-improvement maturity at the margins the NRA reports, and the study says so plainly where that is the finding.

SOP 50 10 8.1 provides that where $500,000 or 30 percent of loan proceeds, whichever is less, goes to leasehold improvements, the lender must obtain the lease, and the lease term including renewal options exercisable only by the borrower should equal or exceed the loan term, and must where an assignment of lease and landlord's waiver cannot be obtained. Leasehold improvements take a maturity of up to ten years plus up to twelve months to complete, with a blended maturity where the loan also funds equipment and working capital and 25 years where real estate is 51 percent or more of proceeds. A 7(a) loan on a leased independent is therefore a ten-year loan in practice, and a ten-year amortization on $1.35 million at the October 2026 cap of 10.00 percent costs about $214,100 a year against about $147,200 over 25 years. The study models the lease at ten years plus borrower-only renewals, confirms assignment and waiver language, and reports what a shorter lease does to the maturity. The program rules are on the SBA 7(a) feasibility study page.

With no Item 19, the projection is built from the floor. Seats, turns by daypart and day of week, check average by daypart, and operating days produce a sales line that the study tests against sales per square foot: the published rules of thumb place full-service break-even between $150 and $250 per square foot and a 5 to 10 percent net margin between $250 and $325, which on 5,000 square feet is $1.25 million to $1.63 million. The trade area supplies the ceiling. The study reports residential and daytime population within the drive time the check supports, restaurant spending per household from the Consumer Expenditure Survey adjusted to local income, visitor demand where the concept draws it, and the competitive census by segment with openings and closings for the prior three years. A sponsor's first-year projection that sits 20 percent or more above the base case the trade area supports is the pattern the lender has seen before, and the study reconciles the two and says where the sponsor's number comes from.

Traffic is the test, not dollars. Black Box chain same-store sales ran 0.7 to 1.8 percent above the prior year in every month from January to May 2026 while traffic ran 1.1 to 2.3 percent below, casual dining traffic fell 1.9 percent, and food-away-from-home CPI rose 3.4 percent. A projection that grows sales at 4 to 5 percent a year without separating traffic from check is overstating real demand.

The cost structure comes from the published medians, not the budget. Full-service labor at 36.5 percent of sales and food and beverage at 32.0 percent, the NRA's 2025 medians, give a prime cost of 68.5 percent, above the 60 to 65 percent that vendor guidance treats as the target band; the study presents the median as the base case and the target band as the upside. Occupancy at the 5.7 percent median is tested against the actual lease: the national shopping-center asking rent of $25.65 per square foot in the second quarter of 2026 is $128,250 a year on 5,000 square feet before CAM, taxes and insurance, 8.6 percent of $1.5 million in sales, above the median. Public-company casual dining margins give the ceiling: Texas Roadhouse's restaurant margin fell to 15.5 percent in 2025 from 17.1 percent on commodity inflation of 9.5 percent, Darden's Olive Garden and LongHorn segments ran 20.4 and 18.0 percent in the quarter reported September 2026, and both carry purchasing power an independent does not. An independent projection showing a restaurant-level margin above about 15 percent before owner compensation needs specific support.

Labor is modeled state by state. Average hourly earnings in food services and drinking places were $21.89 in July 2026, up about 3 percent a year. Tipped cash wages run from $2.13 in eighteen states to the full minimum in California at $16.90, Washington at $17.13, Oregon, Nevada, Montana, Minnesota and Alaska, where no tip credit is allowed; Florida reached $15.00 with an $11.98 tipped cash wage on September 30, 2026, Illinois sits at $15.00 with a $9.00 cash wage, New York at $17.00 downstate. The FICA tip credit under IRC 45B returns 7.65 percent of tips above $5.15 an hour and is a tax item, not operating cash flow; the 2025 federal tip deduction changed employee tax, not employer cost, and requires separate W-2 reporting of qualified tips from tax year 2026. Workers' compensation for restaurants runs about $1.16 to $1.20 per $100 of payroll in Florida and far higher in New York, and the study carries the state's filed rate.

Beef is the commodity line to watch for a steak or burger concept: USDA forecasts beef up 9.4 percent in 2026 and 5.1 percent in 2027 on a cattle herd of 86.2 million head, the smallest in decades. Eggs are forecast down 29.4 percent and dairy flat, so a breakfast or pizza concept carries less cost risk than a steakhouse. The study tests food cost three points up.

A $1.9 million independent in leased space at 10 percent equity carries a $1.71 million 7(a) loan at the 10.00 percent cap, an upfront guaranty fee of about $45,600 for fiscal 2027, and annual debt service of about $271,200 on a ten-year maturity. At the 1.15 times standard floor that requires about $311,900 of EBITDA, which is $2.6 million of sales at a 12 percent margin and $3.1 million at 10 percent, both above any public benchmark for a 120-seat independent. On a 25-year maturity the requirement falls to about $214,500. The case therefore resizes: second-generation space, a landlord allowance, a smaller footprint, more equity, or a 504 where the operator buys the building, and the study shows each path with its DSCR. A funded debt service reserve or an interest-only period carries a start-up to the year it first clears the floor, and the study sizes it to the year-one shortfall and reports it as a condition.

The study reports DSCR as EBITDA over total debt service by year, against 1.15 times on a standard 7(a) loan and 1.10 times on a 7(a) Small loan, with the break-even sales line and the sensitivities: sales at 10, 20 and 30 percent below base, food cost three points up, wages 10 percent up, rates 100 basis points up, and a three-month 50 percent revenue shock against the working capital line. The 2026 record justifies the ranges: restaurant revenue on BizBuySell fell 8 percent year over year in the second quarter, casual dining traffic fell, and the 504 rate rose 125 basis points between March and October.

The cohort-defined loss rate for full-service restaurants is 3.69 percent of 7(a) loans approved in fiscal 2015 through 2020 charged off by count, against 4.2 percent for all accommodation and food services loans approved from fiscal 2010 through March 2026 on a mixed-age book; seasoned all-industry vintages run 5.5 to 6.8 percent and the median time to charge-off is about 50 months. The median full-service 7(a) loan is about $251,000 and the average about $528,000. The study states which cohort it quotes. Restaurant closures ran 8,171 across the U.S. and Canada in the first half of 2026 by one industry count, 47.9 percent of them independent, with no denominator.

Collateral is thin by design. Used restaurant equipment brings 10 to 30 cents on the dollar at auction, leasehold improvements belong to the landlord at lease end, and the loan is a cash-flow loan secured by a lien on all business assets and the personal guaranty. The study says so and does not dress the equipment up.

A MMCG independent restaurant study includes the trade area and demand analysis, the competitive census with openings and closings by date, the seat-and-turn projection tested against sales per square foot, the operating projection on the published medians with state wage and workers' compensation rates, the build-out in three space-condition scenarios with the landlord allowance, the lease test against the loan term, the capital stack, the DSCR schedule with break-even and sensitivities, the reserve sizing and a signed conclusion. Standard delivery is nine to sixteen business days; expedited delivery in five to seven is available. Fees begin at $4,900 for a single-site 7(a) study. Revisions required by the lender or agency are made at no additional cost under MMCG's written acceptance guarantee. See MMCG's feasibility study methodology and where we work.

Independent full-service restaurant in leased space, SBA 7(a): a 120-seat start-up in Cypress, Texas, not feasible as proposed at cold-shell cost on a ten-year maturity (0.42 times), feasible as resized to second-generation space at 20 percent equity (1.36 times at stabilization, with a 3.1 percent cushion to the floor). The resale of an existing independent is on the restaurant acquisition feasibility study page, and a bar-led concept on the bar and nightclub feasibility study page.