SBA Assisted Living Feasibility Study for 7(a) and 504 Loans

No regulation makes a feasibility study automatic for an assisted living facility. The operative text is 13 CFR 120.160(b): SBA "may require" professional appraisals, a survey, or a feasibility study as a loan condition. What converts "may" into "does" is lender practice, and in senior care it is consistent: first-time operators, ground-up construction of a licensed community, a memory care wing added to an existing building, and acquisitions where the price rests on raising occupancy or rates rather than on the trailing census. On those files the credit memo needs independent evidence that the project repays the loan, and a feasibility study with a stated determination and a stressed coverage ratio is the document built to supply it. The program-wide requirements are covered on the SBA feasibility study hub and in the SBA underwriting regulatory spine; this page covers what is specific to assisted living.

The first question on any SBA senior care file is whether the business is eligible at all, and the SOP answers it with a two-part test. Businesses that are licensed as nursing homes or assisted living facilities and provide healthcare or medical services are eligible. Residential facilities that are not so licensed and do not provide healthcare or medical services are passive businesses and are not eligible, in the same category as apartment buildings. The SOP's examples of qualifying services are modest: wellness checks, monitoring or helping with medications, monitoring blood sugar, or having medical staff onsite even part-time. The lender must consider the terms of the license under which the business operates or will operate.

Three consequences follow for the feasibility study. First, bed count is irrelevant to eligibility; a 10-bed licensed home and a 100-unit licensed community are tested the same way, and the common claim that 7(a) is "for" 6 to 16 bed facilities describes lender habit, not a rule. Second, independent living units that carry no care services are ineligible, so a campus with both components has to be split and the SBA loan sized to the licensed portion. Third, the state license is the credit document. For a start-up, the study maps the licensing timeline against the construction schedule, because a lender will condition disbursement or closing on the license even though the SOP does not name a deadline, and a license that arrives six months after certificate of occupancy is six months of carry the capital stack has to fund. Medicaid or other third-party revenue does not affect eligibility; it is a payer-mix and credit question, and the study models it as one.

SBA's guidance lists nursing homes, including assisted living facilities, among its examples of limited or special purpose properties, alongside hotels, car washes, gas stations and golf courses. The classification has two concrete consequences.

First, the down payment. Under 13 CFR 120.910, the minimum 504 borrower contribution rises from 10 percent to at least 15 percent when the project involves a limited or single purpose building, and to at least 20 percent when the business has also operated for two years or less. A first-time operator building a new licensed community is in the 20 percent cell, and the feasibility study's capital stack is built around it. The standard structures are 50 percent bank first lien, 35 percent CDC debenture and 15 percent borrower equity, moving to 50/30/20 for a new business. A borrower with an outstanding special purpose debenture faces 20 percent on the next special purpose project as well.

Second, the appraisal. SBA requires the going concern appraisal on special purpose property to be completed by an appraiser experienced with the property type, with value allocated across real estate, furniture and equipment, and intangible business value, and the SOP sets a track record standard of at least four going concern appraisals of equivalent special use property within the last 36 months. The feasibility study and the appraisal must reconcile: the study's stabilized cash flow is the income the appraisal capitalizes, and lenders notice when the two documents describe different communities.

Three program rules deserve attention in assisted living 504 files beyond the contribution.

The occupancy rules. Under 13 CFR 120.131, the borrower must permanently occupy at least 51 percent of an existing building and at least 60 percent of a new building, with a plan to occupy some of the remaining new-construction space within three years and all of it within ten. An operator-run community satisfies these tests because resident units are the operating business's own space, and where an eligible passive company holds the real estate and leases it to the operating company, the operating company must meet the same tests. The study states the occupancy calculation so the lender does not have to construct it.

The job standard. Since SBA's notice of September 30, 2025, a 504 project must create or retain one job opportunity per $95,000 of SBA-guaranteed debt. Assisted living is labor-intensive and clears the standard easily: a $1.9 million debenture requires 20 jobs, and a 72-unit community with a memory care wing employs well over that. The study documents the full-time equivalent count by position so the application can cite it.

Large projects. For 504 projects of $5 million or more, SOP 50 10 8.1 carries additional lender underwriting, and the study presents coverage both on the lender's first lien and on the combined debt service so the memo can show the 1.15x floor as well as the stressed cases.

The 7(a) program, with its $5,000,000 maximum, is the usual vehicle for acquiring an operating assisted living home or a small community, for refinancing with working capital, and for the business portion of a project whose real estate sits in a 504 loan. The eligibility test and the special purpose classification apply the same way, and the going concern appraisal standard applies to any change of ownership. Where the real estate is included, the study allocates the purchase price between real estate and business value, because that allocation now determines the amortization under SOP 50 10 8.1.

SOP 50 10 8.1 removed the rule under which a borrower's 7(a) exposure reduced the 504 financing available, so the two programs can be paired on one assisted living project. The practical structure is a 504 loan for the land, building and fixed equipment, with its special purpose contribution applied to that portion, and a 7(a) loan for licensing and pre-opening costs, furniture, working capital and the interest reserve through lease-up, with the 7(a) equity injection applied to its own portion. The feasibility study presents the combined capital stack and the combined debt service, year by year, so each lender and the CDC can see coverage on the whole project and not only on its own loan.

SOP 50 10 8.1 applies to loans receiving an SBA loan number on or after October 1, 2026, and its Appendix 15 rewrites the change of ownership rules in ways that matter for senior care acquisitions.

Historical coverage. An initial acquisition must show 1.25x debt service coverage on historical cash flow, with no credit for projected improvements. A buyer who plans to raise occupancy from 80 to 92 percent and rates by 8 percent cannot borrow against that plan; the trailing census and the seller's tax returns set the loan.

Quality of earnings. Where the business purchase price, excluding real estate, is $3 million or more, the lender must commission a quality of earnings review. The feasibility study is built to reconcile to it, and MMCG's acquisition studies state the trailing twelve months by payer source and care level in a form the reviewer can tie out.

Equity and amortization. New owners inject at least 10 percent. The business portion of the loan amortizes over no more than 10 years, unless special use real estate makes up at least 85 percent of the project value, in which case the whole loan may amortize over 25 years; senior care facilities are among the property types that exception was written for. The allocation between real estate and business value is therefore a credit decision, not a tax footnote, and the study states it with the going concern appraisal in view. In MMCG's model acquisition of a 10-bed Arizona home, real estate is roughly 77 percent of the price, which keeps the business portion on a 10-year schedule and tightens coverage at the asking price.

License transfer. Several states, Arizona among them, do not transfer an assisted living license to a buyer; a new license is required, the state must be notified in advance, and the manager must hold the state's certification. The study maps that path against the closing date, because a lender cannot fund an operating business that the buyer is not yet licensed to operate.

SBA's loan-level data for NAICS 623312, assisted living facilities for the elderly, and NAICS 623110, nursing care facilities, is the only public record of how 7(a) and 504 lenders have actually underwritten senior care: loan counts, volumes, terms and charge-offs by year.

A business plan is the applicant's statement of intent. A feasibility study is an independent test of whether the intent repays the loan. Lenders routinely receive both, and they are not substitutes: the business plan supplies the operator's program, staffing model and marketing approach, and the feasibility study tests the market, the lease-up, the labor budget and coverage against sources the operator did not choose. MMCG's studies cite the business plan where it supplies operator facts and depart from it where the evidence does.

Two of MMCG's assisted living model studies are SBA engagements, each with the full cost build-up, the lease-up schedule, coverage by year, sensitivity cases and the stated determination:

The remaining four studies, two USDA, one HUD 232 and one not feasible as proposed, are listed on the assisted living feasibility study page.

MMCG prepares SBA assisted living feasibility studies nationwide for 7(a) and 504 lenders, CDCs and applicants. Engagements start at $4,900 with fixed-fee scoping, delivery runs 9 to 16 business days with rush from 5, payment is 50 percent at engagement and 50 percent on delivery, and every study carries MMCG's written acceptance guarantee: revisions required by the lender or agency are made at no additional cost. Studies are prepared under the direction of Michal Mohelsky, J.D., FMVA. For the asset class fundamentals, the 2026 market, lease-up, labor, payer mix and construction cost, see the full assisted living feasibility study page.