Restaurant Acquisition Feasibility Study under SBA SOP 50 10 8.1

Buying an existing restaurant with an SBA loan changed on October 1, 2026. Under Appendix 15 of SOP 50 10 8.1 an Initial Acquisition is tested at 1.25 times debt service coverage on historical EBITDA, projections cannot cure a shortfall, total debt is capped at the independent valuation, and the business portion amortizes over no more than ten years. MMCG Invest prepares restaurant acquisition feasibility studies for SBA 7(a) and conventional financing that reconcile the seller's point-of-sale reports to bank deposits and tax returns, document every add-back and the replacement manager wage, place the price on the published multiples, test the lease and the liquor license transfer against the closing timeline, and report the debt service coverage ratio (DSCR) the lender must see before it can close.

SBA issued SOP 50 10 8.1 on August 14, 2026 and replaced it with the Technical Policy Updates version on September 25, 2026, effective for loans numbered on or after October 1. The September text governs, and several widely circulated summaries describe the August text. For a restaurant buyer the operative rules are these. A change of ownership is sorted into one of four categories: Initial Acquisition, Business Expansion, Owner Buyout, or ESOP and Cooperative. An Initial Acquisition is any purchase by a buyer who was not previously an owner or employee, and a deal that fails every other category defaults to it. It requires a 10 percent equity injection of total project cost that cannot be reduced or eliminated, with seller debt on full standby, other standby debt and non-controlling minority investors under 20 percent together providing no more than half of it. The DSCR floor is 1.25 times, measured as EBITDA over all post-transaction debt service on the last fiscal year-end or the average of the last two, on a historical or adjusted historical basis; projections may be reviewed but cannot satisfy the floor. A Business Expansion, an operator with two full fiscal years of history buying a second unit in the same industry, is tested at 1.15 times and the injection may be reduced with adequate liquidity. The business portion amortizes over no more than ten years unless 85 percent or more of value is special-use real estate. Total acquisition debt, including any seller note not on full standby, is capped at the independent business valuation, and any excess price is made up in equity. A standby seller note must be in place and current for 36 months before it can be refinanced; a seller may stay on as a consultant for up to 24 months; earnouts are prohibited, though a post-close rebate applied to principal and a purchase-agreement working capital true-up are allowed. The business valuation on a change of ownership is prepared by a Qualified Source, in practice a holder of the ASA, CBA, ABV, CVA or BCA credential, commissioned by and prepared for the lender. A Quality of Earnings report with a cash proof is required at a business purchase price of $3 million or more. An acquisition with no clear continuity of operations may be evaluated as a start-up. MMCG's reading of the change is in SBA Stopped Lending on Projections, and the general spine is on the restaurant feasibility study hub.

Restaurants trade small and cheap, and the lender should know where a $1 million deal sits on the distribution. BizBuySell's five-year record, sales from the third quarter of 2021 through the second quarter of 2026, puts restaurants at 2.18 times seller's discretionary earnings and 0.39 times revenue on a $220,000 median price, with median revenue of $718,271, median owner earnings of $120,355 or 16.8 percent of revenue, half of sales between 1.34 and 2.53 times earnings, and 178 days on market. Bars, pubs and taverns trade at 2.76 times and 0.51 times on a $296,500 median; bakeries at 2.44 and 0.51 on $200,963. The market is softening: restaurant transactions fell 12 percent year over year in the second quarter of 2026 and the median price fell 12 percent to $205,000, while the average cash-flow multiple rose 5 percent. A broker using the same data plus its own closings reported a 2.41 average multiple and 90.3 percent of asking in the first half of 2026. The all-industry Market Pulse puts the $1 million to $2 million band at 3.0 to 3.3 times for the first quarter of 2026, which is the ceiling a restaurant rarely reaches without management depth. The study places the price on that distribution and says whether the multiple is supported.

Seller's discretionary earnings is cash flow before one owner-operator's compensation; EBITDA is after a market manager wage; SBA tests on EBITDA after justified adjustments. The bridge is the replacement wage, and it is often what decides the file. The BLS median for food service managers was $69,390 in May 2025, about $76,000 with payroll load. On a $1.05 million purchase with a $1,030,500 loan at the 10.00 percent cap over ten years, debt service is about $163,400 and the 1.25 times floor needs about $204,300 of EBITDA, which is about $280,300 of discretionary earnings, 3.75 times at the price. At the market's 2.15 to 2.18 times the deal covers above 2 times, so for most restaurant acquisitions the floor is not the binding constraint. The valuation cap and the ten-year amortization are. On a smaller deal the wage decides it: at $100,000 of discretionary earnings and $34,000 of debt service, a $50,000 replacement wage gives 1.47 times and a $65,000 wage gives 1.03 times.

The projection in an acquisition study is the history, and the history has to survive the lender's tie-out to IRS transcripts. The study reconciles the seller's point-of-sale reports to bank deposits and to the filed returns for the trailing twelve months and the last two fiscal years, the cash proof that SOP 50 10 8.1 mandates only in a Quality of Earnings report but that MMCG performs at any price. Sales reported to the state for sales tax are compared to the returns. Each add-back is documented: non-recurring items, owner compensation and benefits, related-party transactions, deferred maintenance and cash-versus-accrual differences are the categories the SOP recognizes. Unreported cash sales and unreported tips are never accepted as add-backs. The FICA tip credit under IRC 45B is a tax item and is removed from operating cash flow if the seller's statements include it; a restaurant with more than ten employees files Form 8027, and reported tips below 8 percent of gross receipts trigger allocation and are a diligence flag. Payroll tax arrears, the state unemployment experience rate, and the hood, HVAC and walk-in condition are read for deferred cost. Where the buyer will change the concept, the hours or the menu, continuity of operations is in question and the study says whether the lender should evaluate the file as a start-up instead.

The acquisition record supports the historical test. One analysis of fiscal 2018 and 2019 7(a) cohorts puts change-of-ownership loans at 6.88 percent charged off against 9.83 percent for all other loans; the seasoned fiscal 2015 to 2019 all-industry rate is 6.92 percent by count and 7.09 percent for accommodation and food services. Changes of ownership were about 10 percent of 7(a) loans from October 2023 to June 2026 at a median of $693,000 and a median rate of 9.5 percent.

An acquisition loan is a cash-flow loan, and the study says so. Under IRS Form 8594 inventory is Class IV, furniture and equipment Class V, the liquor license and other government licenses Class VI, and goodwill and going concern Class VII, and no class but goodwill may carry more than its fair market value. Used restaurant equipment brings 10 to 30 cents on the dollar at auction and 50 to 70 cents in a private sale, so furniture and equipment is carried at orderly liquidation value well below half of new and most of the price lands in goodwill. The business valuation must support the price; the appraiser allocates between tangible and intangible assets; and the lender's lien on all business assets, the personal guaranty and the life insurance assignment are the security. MMCG's view of the division of labor between the valuation and the study is in When the Appraisal Isn't Enough.

The lease is the asset most buyers underprice. SOP 50 10 8.1 provides that where leasehold improvements or collateral on leased premises reach $500,000 or 30 percent of proceeds, 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. With a ten-year amortization on the business portion, the study models at least ten years of remaining term including borrower-only options, and reads the assignment clause, the landlord's consent standard, the guaranty the landlord will require of the buyer, the estoppel, and any percentage rent or relocation right. A lease with three years left and no options is a finding that ends the file. The program rules are on the SBA 7(a) feasibility study page.

A liquor license transfers on the state's timeline, not the closing's, and the study puts the two side by side. In Texas a permit does not transfer at all: the buyer files an original application for a Mixed Beverage permit at $5,300 for two years plus local fees of up to half the state fee, and the gap between closing and issuance is an operating risk with no interim permit for an asset buyer. In New York every transfer applicant is eligible for a Temporary Retail permit at $640 per bar for 180 days, extendable at $96 per 30 days, provided the premises operated under a license within 30 days of filing and the municipality received 30 days' notice; the permanent license takes about 24 to 26 weeks. In California a quota license such as a Type 47 transfers through an escrow holding the full purchase price, with an $800 transfer fee that is trivial next to market prices of $100,000 to more than $400,000 in Los Angeles, and a temporary permit is available for a person-to-person transfer. Pennsylvania licenses sold at auction at an average top bid of $284,394.50 in June 2026; a Florida 4COP in Duval County was asking $710,000. Whether the license can be pledged is a matter of state law, and the study states it. The format is covered on the bar and nightclub feasibility study page.

Two statutory controls govern the sales tax exposure a buyer inherits. In New York the buyer files Form AU-196.10 by registered mail at least ten days before paying or taking possession, the Department replies within five business days, and the buyer withholds if a claim issues. In California the buyer obtains a CDTFA tax clearance or withholds enough of the price to cover the liability, which runs up to the purchase price. Payroll tax successor liability and the transfer of the state unemployment experience rate are read state by state. These are closing conditions the study lists, because a seller's tax arrears become the buyer's debt service problem.

Ninety percent of buyers expect seller financing and 29 percent of sellers plan to offer it, with buyers seeking 30 to 40 percent of the price and sellers comfortable at 10 to 20. Under Appendix 15 a seller note counts toward the injection only on full standby for the life of the loan, no principal or interest, and the limited sources together may supply no more than half of the 10 percent. A seller note that is not on full standby is debt service in the DSCR, and an interest-only note is tested on a ten-year amortization. The study models the minimum structure, 5 percent buyer cash plus 5 percent full-standby seller note, and shows any non-standby note in the coverage.

A MMCG acquisition study includes the category determination under Appendix 15, the cash proof reconciling POS, deposits and returns, the add-back schedule with documentation, the replacement wage, the historical DSCR on the last fiscal year and the two-year average, the price on the published multiples, the price allocation and collateral discussion, the lease test against the amortization, the liquor license transfer timeline, the successor liability conditions, the seller note structure, sensitivities 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-unit 7(a) acquisition and run $7,500 to $12,500 where real estate, multiple units or a Quality of Earnings coordination is involved. 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.

Full-service restaurant acquisition under Appendix 15, SBA 7(a): a $1.05 million purchase in Westchester County that clears the 1.25 times historical test at 2.08 times, and is decided by the valuation cap and the cash proof rather than by the DSCR. The resale of a franchised unit adds the transfer fee and franchisor approval covered on the restaurant franchise feasibility study page.