SBA Feasibility Study

1. When does the SBA require a feasibility study?

SOP 50 10 8 does not impose a universal mandate. The requirement is driven by the borrower type (startup versus established), the project type (new construction, change of ownership, special-purpose property, franchise), and the lender's credit policy. Feasibility studies are most consistently required for startups, new construction, 504 special-purpose property, franchise concepts, business acquisitions, and any 7(a) or 504 transaction where the lender credit memorandum or CDC review materially relies on third-party market and financial validation. The applicable regulatory anchors are 13 CFR 120.160 (reasonable assurance of repayment) and the operative SOP requirement that the lender document market viability for the specific project.

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2. What is the difference between a 7(a) and a 504 feasibility study?

A 7(a) feasibility study centers on the borrower's total debt-service capacity, generally targeting a global debt-service coverage ratio at or above 1.15x post-debt-service. A 504 feasibility study covers everything a 7(a) study covers plus three additional layers: the job creation requirement (one job per $90,000 of debenture funding), public policy goal alignment, and the senior bank credit committee review, which typically applies stabilized DSCR floors of 1.20x to 1.35x and loan-to-value caps of 65 to 80 percent. The 504 analysis must satisfy SBA, the CDC, and the senior bank simultaneously, which is why 504 studies are generally more rigorous than 7(a) studies for comparable asset classes.

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3. What qualifies as special-purpose property under SOP 50 10 8?

Under SOP 50 10 8 Subpart C Chapter III, a special-purpose property is a limited-market property with unique physical design, special construction materials, or a layout that restricts its utility to the specific use for which it was originally designed. Examples on the current SBA list include hotels and motels, gas stations and convenience stores, car washes, golf courses and tennis facilities, bowling alleys, theaters and amusement parks, campgrounds and RV parks and marinas, funeral homes and crematoriums, nursing homes and assisted living facilities, car dealerships, cold storage facilities, wineries and breweries and distilleries, sports complexes and ice rinks, truck stops, dog kennels, and ambulatory surgery centers, dialysis facilities, and shielded medical imaging centers. The classification is functional rather than aesthetic.

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4. How does special-purpose classification affect the 504 capital structure?

Standard 504 transactions use a 50/40/10 capital structure (50 percent senior bank, 40 percent CDC debenture, 10 percent borrower equity). Special-purpose property shifts the structure to 50/35/15, adding 5 percent to the borrower's equity requirement. When the borrower is also a startup, the structure shifts again to 50/30/20, requiring 20 percent total equity. Special-purpose classification also triggers a going-concern appraisal performed by a Certified General Real Property Appraiser experienced in the relevant special-use property type, not a generalist commercial appraiser.

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5. Does my franchise concept require a feasibility study?

The SBA Franchise Directory was reinstated under SOP 50 10 8. A franchise concept that does not appear on the Directory is not eligible for SBA financing, with eligibility maintained at the franchisor level. Beyond Directory listing, individual franchisee feasibility studies are typically required for new-unit development, large multi-unit acquisitions, and any franchise transaction where the lender credit memorandum specifically requests market and financial validation. The franchisee feasibility study confirms unit economics, royalty and advertising fund structure, territory protection where granted, franchisor support, and demonstrated franchisee success rates from Item 19 of the Franchise Disclosure Document where available.

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6. How much does an SBA feasibility study cost?

MMCG SBA feasibility studies start at $4,900 for single-site 7(a) business acquisitions, franchise concepts, and smaller commercial real estate projects. SBA 504 general-purpose owner-occupied commercial real estate ranges $6,500 to $12,000. SBA 504 special-purpose property (hotel, gas station, car wash, RV park, gym, ambulatory surgery center, and the broader special-purpose list) ranges $7,500 to $18,000 depending on complexity. Multi-site portfolios are tiered. Hospital-scale and institutionally complex transactions range $15,000 to $40,000. Payment is 50 percent at engagement and 50 percent at delivery. No hourly billing.

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7. How long does an SBA feasibility study take?

Standard turnaround is 9 to 16 business days for single-site studies. Expedited 5 to 7 business day delivery is available with a premium. SBA 504 special-purpose property and multi-site portfolios typically run toward the upper end of the standard range at standard pace. Hospital-scale and USDA Community Facilities transactions can extend further. The firm coordinates timing with the lender's submission deadline so that the feasibility study is in hand before the credit committee meeting.

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8. Can the appraiser write the feasibility study?

Generally no, and never in a way that satisfies SBA review. SOP 50 10 8 explicitly requires that the feasibility study be performed by an independent third party qualified for the analysis. The appraisal answers a different question (value at a moment in time) using a different analytical framework (cost, sales comparison, income approaches under USPAP Standards 1 and 2), while the feasibility study answers viability over the underwriting horizon. Some appraisers position feasibility add-ons, but lender credit committees and CDC underwriters increasingly require a standalone feasibility deliverable from a consultant with documented industry-specific competence.

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9. What independence standards apply to SBA feasibility consultants?

The consultant must be independent of the lender, the borrower, and the borrower's principal owners. The consultant cannot have a contingent fee structure tied to loan approval. The consultant cannot have a referral relationship with the lender that creates a financial conflict. The consultant must demonstrate industry-specific competence relevant to the project. MMCG does not arrange financing, does not receive lender referral fees, and does not adjust analytical conclusions to support a predetermined narrative. The firm operates under USPAP-aligned competency, scope of work, and reporting standards.

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10. What minimum DSCR does the SBA expect?

Lender credit committees generally target a global debt-service coverage ratio at or above 1.15x post-debt-service for 7(a) transactions, with the senior bank participation in 504 transactions typically requiring 1.20x to 1.35x stabilized DSCR. The global DSCR includes all senior debt, the proposed SBA loan, any subordinated obligations, and the borrower's affiliate cash flow. The feasibility study models DSCR retention under sensitivity scenarios stressing volume, pricing, and operating cost, with the target of maintaining DSCR above 1.20x under combined moderate stress.

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11. Does the SBA Small Loan band require a feasibility study?

The 7(a) Small Loan band (loans of $350,000 and below, reduced from $500,000 under SOP 50 10 8) operates under a streamlined credit framework where SBA's scoring model substitutes for some lender underwriting. Feasibility studies are less consistently required in this band but are still common for startups, special-purpose property, change of ownership, and franchise concepts. The Standard Loan band ($350,001 to $5 million) requires a full lender credit memorandum and is where third-party feasibility studies most often appear.

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12. What sensitivity analysis does the lender expect?

A 2026 bankable SBA feasibility study includes volume ramp stress at 10, 20, and 30 percent below base case; pricing or revenue per unit stress at 5 to 10 percent below base case; labor cost stress at 5 to 10 percent above base case; capital cost stress for any variable-rate component; and DSCR retention under both individual stresses and a moderate combined stress scenario. The target is DSCR retention above 1.20x under combined moderate stress, with the project remaining viable even under more severe single-variable stress. For special-purpose property the sensitivity layer extends to alternative-use analysis demonstrating residual value if the as-designed use fails.

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13. Can the borrower's business plan substitute for a feasibility study?

No. A business plan is a borrower-prepared narrative; a feasibility study is an independent third-party analysis. SOP 50 10 8 requires independence, and lender credit committees and CDC underwriters routinely reject borrower-prepared documents as a substitute for feasibility analysis on transactions where a feasibility study is required. The business plan and the feasibility study serve different purposes and are typically both included in the loan package, with the feasibility study supplying the independent market and financial validation.

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14. What happens if my project is classified as special-purpose mid-process?

The classification can change during underwriting if the CDC, the senior bank, or SBA's secondary reviewer identifies design features, equipment, or operational characteristics that trigger the limited-market test. The borrower's equity injection increases from 10 percent to 15 percent (or 20 percent if startup), the going-concern appraisal scope expands, and the feasibility study must include explicit alternative-use analysis. MMCG flags potential special-purpose classification at the engagement scoping stage to avoid mid-process scope changes.

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15. What if the SBA loan is later sold or goes to liquidation?

SBA 7(a) loans are routinely sold on the secondary market, with the guaranteed portion trading separately from the unguaranteed portion. When a loan defaults and the lender requests SBA guaranty payment through the National Guaranty Purchase Center, SBA reviews the original underwriting file, including the feasibility study. A feasibility study performed by a non-independent or unqualified consultant is one of the most common reasons SBA denies guaranty payment, creating recourse risk for the lender. The independence and competence of the feasibility consultant therefore has consequences beyond the original underwriting.

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16. Does MMCG work nationally or only in specific regions?

MMCG operates across all 50 states. The firm has produced studies for projects in every major U.S. market and most secondary markets, with peer benchmark data, trade-area mapping, and competitive analysis calibrated to the specific submarket regardless of geography. Engagements are managed remotely with site visits or local market interviews when project complexity warrants. Initial proposals are typically returned within 24 to 48 hours of inquiry at info@mmcginvest.com.