SBA Retail Feasibility Study: 7(a) and 504 Under SOP 50 10 8.1

A hotel or a car wash is special-purpose collateral, and SBA treats it that way with higher equity and heavier scrutiny. A retail building is general-purpose collateral; a bank can re-lease it. The eligibility problem in a retail file is different and it comes first: SBA does not lend to landlords. Under 13 CFR 120.110(c), passive businesses owned by developers and landlords that do not actively use or occupy the assets financed are ineligible, and under 120.130(d) loan proceeds may not fund property acquired or held primarily for sale, lease or investment. A strip center owned to be leased, a pad site owned to be ground-leased to a national tenant, and a multi-tenant building whose owner occupies a small suite are all outside the program.

What is inside the program is the operating business that owns or will own its building. The study therefore opens with the two facts that decide eligibility, the occupancy allocation and the borrower structure, and only then turns to the trade area, on the method of the retail feasibility study.

Under 13 CFR 120.131(b), where the loan acquires, renovates or reconstructs an existing building, the borrower must permanently occupy and use at least 51 percent of the Rentable Property and may permanently lease up to 49 percent to others. Under 120.131(a), where the loan funds new construction, the borrower must occupy at least 60 percent on completion, may permanently lease no more than 20 percent, and must occupy some of the remaining space within three years and all of it within ten. The rule applies to both 7(a) and 504, and where an Eligible Passive Company holds the building and leases it entirely to one or more Operating Companies, the Operating Companies together must meet the same percentages.

The study measures the test rather than asserting it. Rentable square footage is taken from the architect's plans or the building's measured floor plates, the operator's space and the leased space are stated, and the percentage is shown. The margin matters: a 7,500-square-foot new building with the operator in 4,500 square feet is at the 60 percent line with no room for a larger leased suite, and a two-story main-street building whose ground floor is 34 percent of the total fails unless the operator also takes the basement or part of the upper floor. Where the lender's reading of the SOP affects what counts as Rentable Property, for instance common areas, basements and residential floors, the study states the allocation under each reading and identifies which one the lender must adopt. See the SBA mixed-use feasibility study page for buildings with residential above.

Most small operators hold the real estate in a separate entity. SBA permits this through the Eligible Passive Company under 13 CFR 120.111, and the study documents each condition because a CDC will. The EPC may use proceeds only to acquire, lease, improve or renovate property that it leases to the Operating Company. Both entities must be small. The lease must be in writing, subordinate to SBA's lien, with rents assigned as collateral, and rent may not exceed the loan payment plus the EPC's direct holding costs such as taxes, insurance and maintenance. The remaining lease term, including options the Operating Company alone may exercise, must be at least the loan term. The Operating Company must guarantee or co-borrow, and must co-borrow where a 7(a) loan includes working capital for it. Every owner of 20 percent or more of either entity guarantees. A loan to an EPC counts against the loan limits of both entities. For a 504 project the regulation at 120.880 requires the borrower to use the Project Property, with the EPC lease to an Operating Company as the exception.

General retail and restaurants are not on SBA's special-purpose list. Gas stations and convenience stores, car washes, service centers with pits and in-ground lifts, and medical facilities are, among others, and those uses belong to their own clusters. The distinction decides the 504 borrower contribution under 13 CFR 120.910: 10 percent in the standard case, 15 percent where the business, or the Operating Company behind an EPC, has operated two years or less, 15 percent where the building is limited or single purpose, and 20 percent where both conditions apply. An established retailer building a general-purpose building contributes 10 percent. A new entity building the same building contributes 15 percent. The study states the tier and the reason.

Where the borrower is buying a retail business together with its building, SOP 50 10 8.1 Appendix 15 governs. The transaction is classified as an Initial Acquisition, a Business Expansion, an Owner Buyout or an ESOP or Cooperative transaction. An Initial Acquisition, Owner Buyout or ESOP transaction must show a historical DSCR of at least 1.25 times, measured on the last fiscal year or a two-year average; a Business Expansion must show a 1.15 times DSCR. 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 Quality of Earnings report is required when the business purchase price reaches $3 million, and advisory and agent fees may not count toward the equity injection.

In an acquisition file the study normalizes the seller's trailing income for one-time sales, owner compensation, deferred maintenance, related-party rent and any lease the buyer will not assume, reconciles the normalized figure to the seller's financial statements and tax returns and to the Quality of Earnings report where one is required, and tests whether the historical DSCR floor survives the normalization. It also tests the real estate at an imputed market rent, because the lender underwrites the building as if a third party occupied it. The study explains the history; it does not replace it, as the Columbus, Indiana retail acquisition case shows.

SBA 7(a) finances the acquisition of a retail business and its building, the purchase of a smaller owner-occupied building, equipment, inventory and working capital in one loan of up to $5 million, with the guaranteed portions to one borrower and its affiliates capped at $3.75 million and a guarantee of up to 85 percent on loans of $150,000 or less and 75 percent above that. It is the program of choice where the business, not the building, is most of the project, where working capital and inventory are large, or where the project is too small for a debenture. Fiscal 2027 upfront guarantee fees are 2 percent on loans of $150,000 or less, 3 percent from $150,001 to $700,000, and 3.5 percent of the guaranteed portion up to $1 million plus 3.75 percent above $1 million for loans to $5 million, with a 0.55 percent annual service fee. The upfront fee is waived on loans of $700,000 or less to manufacturers, food supply chain businesses and businesses in rural areas.

SBA 504 finances owner-occupied real estate and long-lived equipment through a fixed-rate debenture of up to $5 million, or $5.5 million for a small manufacturer or a project that cuts energy use by at least 10 percent or generates renewable energy, paired with a third-party first mortgage of at least 50 percent of project cost. It is the program of choice for new construction and for larger building purchases. The debenture carries a 25-year maturity where real estate is 51 percent or more of proceeds, which covers nearly every retail building. Fiscal 2027 debenture fees are 0.50 percent upfront and 0.203 percent annually, waived for the same manufacturer, food supply chain and rural categories. Outstanding 504 debt to one borrower is capped at $5 million under 13 CFR 120.931, and the combined SBA exposure across 7(a) and 504 is $10 million, which allows a 504 debenture on the building alongside a 7(a) loan for equipment and working capital.

The 504 job standard requires one job created or retained per $95,000 of debenture for a standard project. A $1.5 million debenture needs sixteen jobs, which a restaurant or a grocery meets easily and a small specialty retailer may not. Where the per-project test is not met, 13 CFR 120.862 lists the community development and public policy goals that substitute for it, including revitalizing a business district of a community with a written revitalization or redevelopment plan and aiding rural development; the CDC's portfolio must then meet its own job average. The study states which test the project meets.

The study is organized around the questions the lender, the CDC and the district office will ask.

It opens with eligibility: the occupancy allocation measured on rentable square footage under the applicable test, the borrower structure with each EPC condition documented, the special-purpose determination with the resulting equity tier, and for an acquisition the Appendix 15 classification and the historical DSCR before and after normalization.

It then establishes the trade area from drive times reconciled to radius rings; measures population, households, income, daytime employment and the named generators; runs the leakage and surplus analysis by category at the city, county and metropolitan geographies and reasons the capture rate from the subject's site and position; verifies the competitive set property by property with openings and closings by date and adds permitted and rezoned supply; records the state DOT traffic count by station, year and value; projects the operator's sales, prime cost and margin from the concept's public benchmarks and the local wage base, with an imputed market rent carried as a check; projects any leased space on its own lease; presents the project cost by line item benchmarked to the current cost index and the municipal fee schedule; states the capital stack at the applicable tier; and reports the DSCR at each year of the projection, net operating income over the combined first-mortgage and debenture service, with sales, rent and expense sensitivities and the year in which the lender's DSCR floor is first met.

The study concludes feasible, feasible with conditions, or not feasible, with the condition expressed in the lender's terms.

The study is prepared against a retail market with 4.3 percent national vacancy and asking rents growing 1.6 percent in CoStar's October 2026 national report, where construction starts sit near decade lows because in-place rents do not cover replacement cost. For an owner-occupant that is the right market: little new competing supply, and a building whose cost is justified by the business rather than by the rent. The constraints are on the cost side. Rider Levett Bucknall's cost index rose 4.45 percent in the year to July 2026, in-line fit-out runs $126 per square foot in the Southeast and $157 nationally in Cushman & Wakefield's 2026 guide, and a full-service restaurant build sits well above that once kitchen, hood and grease systems are added. The study escalates every pre-2026 benchmark explicitly and states the project's cost against the comparable permit record on the corridor.

An MMCG SBA retail feasibility study runs between 80 and 120 pages and is delivered in 9 to 16 business days from engagement and receipt of the project file, with rush delivery from 5 business days. Fees begin at $4,900 for a single-site SBA 7(a) retail study and range from $7,500 to $15,000 for SBA 504 studies depending on project scale, the number of tenants and the number of scenarios. Payment is 50 percent at engagement and 50 percent at delivery. MMCG accepts no referral fees, contingent fees or financing arrangements, and revisions required by the lender, CDC or SBA are made at no additional cost under MMCG's contractual acceptance commitment.

The SBA retail method is illustrated by a model engagement on the Dr. Martin Luther King Jr. Boulevard corridor in New Bern, North Carolina: a restaurant operator's owner-occupied new build under SBA 504, in a regional hub city whose retail sales exceed its residents' spending by $561 million and whose corridor has just lost a pharmacy and gained a Sheetz, a Biscuitville and a rebuilt Smithfield's. As proposed at 7,500 square feet the building leases 40 percent permanently against the 20 percent cap and covers at 0.91x at the 15 percent tier; resized to 6,000 square feet with a 25 percent contribution it passes the occupancy test at 61.7 percent and covers at 1.27x in Year 3. The engagement is illustrative and built on public evidence only. It is published as its own page: New Bern retail case study.