USDA Business and Industry (B&I) Feasibility Study

A B&I feasibility study is mandatory for USDA guaranteed loans greater than $1,000,000 to a new business and discretionary on every other B&I loan. USDA sets the scope, the lender must evaluate the study in writing, and the strength of the study is one of the factors USDA weighs when it sets the borrower's equity requirement. MMCG prepares B&I studies that map each Appendix A component to the lender checklist and the conditional commitment conditions, so that nothing has to be reconstructed at the State Office.

7 CFR 5001.306 sets three application tiers. Guaranteed loans of $600,000 or less use a streamlined application. Loans above $600,000 use the full application. For guaranteed loans greater than $1,000,000 to a new business, a feasibility study prepared by an independent qualified consultant acceptable to the Agency is required, and the scope of the study is determined by the Agency. A new business under 5001.3 is one with fewer than one full year of operation or one that has not reached stable operations, including an existing enterprise or affiliate moving into a new market or labor area. The threshold is measured on the guaranteed loan amount, not on total project cost: a $4,000,000 project with a $900,000 guaranteed loan does not trip the mandatory trigger, while a $1,200,000 guaranteed loan on a $1,500,000 project does.

Below the threshold, and for existing businesses, the Agency may require a study where the lender's analysis is not sufficient, and most guaranteed lenders request one on new construction, on significant expansions and on any project whose projections depart from operating history. Separately, 5001.306 requires a technical report for renewable energy systems and for integrated processing systems, and projects greater than $1,000,000 that would add more than 50 jobs require Department of Labor concurrence that the project will not transfer jobs or harm existing competitors, a market-feasibility question the study answers directly.

The study addresses the five Appendix A components: economic, market, technical, financial and management feasibility. For B&I the financial component carries the regulatory weight. Under 5001.303 the projections run from current financial statements through a minimum of two years of the project performing at full operational capacity or stable operations, extended to loan maturity where the Agency asks, with a list of assumptions supporting every line and a pro forma balance sheet at closing. The lender's credit evaluation under 5001.202 must then contain a written evaluation of the feasibility study, ratio analysis with comparisons to industry standards such as the Risk Management Association or Dun and Bradstreet, quarterly cash flow for seasonal businesses, and, where the loan note guarantee is requested before construction completion, quarterly cash flow from current statements through start-up or occupancy that mirrors the construction draw schedule. Affiliated entities require a global debt service coverage analysis that includes the guarantors.

MMCG builds the study so that each of those items can be lifted directly into the credit memorandum: a stated-assumption schedule, an RMA median-quartile comparison for current ratio, quick ratio, debt-to-worth and debt service coverage, a seasonal quarterly cash flow where the business is seasonal, a construction-period cash flow where the guarantee is requested before completion, and a sensitivity analysis on the revenue drivers that matter for the asset class.

The method is set out in full in MMCG's feasibility study methodology.

The equity rule in 5001.105 is the clearest reason study quality matters. Existing businesses must show 10 percent balance sheet equity. New businesses must show 20 percent balance sheet equity or an investment equal to 25 percent of total project cost, reduced to 10 percent where sales contracts cover debt service for the full loan term, and raised to 25 percent where the lender requests the loan note guarantee before construction is complete. USDA may raise the requirement on higher-risk loans after considering, among other factors, the strength of the feasibility study and the experience of management, and it may lower the requirement for existing businesses whose pro formas meet the RMA median quartile.

Part 5001 sets no general numeric debt service coverage minimum. The conditional commitment under 5001.451 carries the minimum debt service coverage ratio and the maximum debt-to-net-worth ratio the lender or the Agency requires, together with uses of funds, rate and term, collateral, guarantors, dividend and compensation limits and environmental conditions. The commitment must be accepted within 60 days and remains effective for one year. At closing the lender certifies that there is a reasonable prospect that the guaranteed loan and all other project debt will be repaid from project cash flow and that the B&I equity requirement was met on the closing balance sheet.

The study also documents the priority scoring criteria under 5001.318, where USDA awards up to 100 points. Points the study can support with evidence include a community of fewer than 25,000 people, a distressed or persistent-poverty county, unemployment at or above 125 percent of the state rate, a loan under 60 percent of project cost, an industry not already present in the community, local ownership, a natural resource value-added product, at least five jobs paying more than 150 percent of the federal minimum wage, and an employer-paid health plan.

Eligible borrowers are cooperatives, corporations, partnerships, other legal entities, tribes, public bodies and individuals who are U.S. citizens or lawful permanent residents, engaged or proposing to engage in a business that primarily creates or saves jobs for rural residents. The project must sit in a rural area, meaning outside any city or town of more than 50,000 people and the urbanized area adjacent to it, and the collateral must be fixed assets that remain in the United States. Eligible uses under 5001.121 include land, buildings and infrastructure, business acquisitions that create or save jobs, machinery and equipment, permanent working capital, feasibility studies and business plans, professional fees, guarantee fees and interest during construction. Ineligible projects under 5001.115 and 5001.118 include golf courses, racetracks, for-profit zoos, lines of credit, apartments and other residential housing, timeshares, owner-occupied housing unless the owner's pro rata quarters are deducted, primarily commercial rental where the borrower does not control tenants, and technology that is not commercially available. A borrower deriving more than 15 percent of gross revenue from gambling, including lease income from gaming machines, is ineligible, as are borrowers with delinquent federal debt or any income from marijuana.

The maximum B&I guaranteed loan is $25 million per borrower, rising to $40 million for rural cooperatives processing value-added agricultural commodities with Secretary approval, subject to a $100 million guarantor limit. The term is justified by the useful life of the assets financed and may not exceed 40 years, with no balloon payments and the first full installment due within three years of the note. Interest rates are negotiated between lender and borrower, fixed or variable, no higher than the lender charges on comparable non-guaranteed loans, with variable rates tied to a published base rate and adjusted no more than quarterly. Discounted collateral must at least equal the loan amount, and personal, partnership or corporate guarantees are required from every owner of 20 percent or more. For fiscal year 2026 USDA guarantees 85 percent of loans under $5 million and 80 percent of loans from $5 million to $25 million, with a 3 percent initial guarantee fee and a 0.55 percent annual retention fee. Where the lender requests the loan note guarantee before construction is complete, USDA adds a 0.5 percent fee, requires an independent disbursement and monitoring arrangement, a fixed-price construction contract, a budget and timetable confirmed by a qualified independent consultant, borrower equity injected first, and either contractor vetting or a 100 percent performance and payment bond. Wind and solar projects are not eligible for B&I; energy components route to REAP. Loan note guarantees for biodigester and controlled environment agriculture projects remain paused across Rural Business-Cooperative Service programs through December 31, 2026.

The sequence runs from an optional preliminary eligibility review under 5001.302, to the complete application under 5001.303 that includes the feasibility study, to the environmental review that must be complete before approval, to the Agency's eligibility determination and priority scoring, to the conditional commitment and closing. The study sits inside the complete application, so it is the first document on the critical path. MMCG delivers the study in 9 to 16 business days from engagement, with rush turnaround from 5 days. Lenders can expect a response within 30 to 60 days of a complete application. State Directors hold approval authority of $5 million at the base level and up to $10 million at the maximum level under RD Instruction 1901-A; loans above the state delegation receive National Office review, and cooperative loans above $25 million require Secretary approval. Any modification after the Agency accepts a complete application is treated as a new application, and a borrower who starts construction before the conditional commitment assumes all risk.

B&I requires an independent consultant's study only above $1,000,000 to a new business, with a technical report for energy and integrated processing systems. Community Facilities requires a financial feasibility report on every guaranteed loan, either a lender-prepared analysis or a CPA examination opinion, with an independent study above $1,000,000 for new entities and new activities and a 90 percent occupancy cap on senior housing projections; see our USDA Community Facilities feasibility study page. REAP requires a technical report on every guaranteed loan, tiered at $80,000 and $200,000 of project cost, and a feasibility study for renewable energy systems only when the lender or the Agency requires one; see our USDA REAP feasibility study page. The hub page on USDA feasibility studies compares all three programs.

Accommodation and food services and manufacturing together account for roughly half of B&I dollars. MMCG prepares B&I studies for hotels and resorts, RV parks and campgrounds, glamping and outdoor hospitality, gas stations and convenience stores, truck stops and travel centers, assisted living, manufacturing and food processing, grocery and essential retail, car washes and self-storage. Each asset page carries a USDA financing section with the eligibility rules, the trigger and the metrics USDA reviewers expect, and representative model studies.

MMCG B&I feasibility studies typically range from $8,000 to $16,000 on a fixed fee, depending on asset class, number of revenue streams, cooperative or integrated processing structure and the scope the lender and the State Office require. Payment terms are 50 percent at engagement and 50 percent on delivery. Standard delivery is 9 to 16 business days. Feasibility studies and business plans are an eligible use of B&I guaranteed loan funds under 5001.121(c)(10). Every study carries a written acceptance guarantee: revisions required by the lender or by USDA are made at no additional cost.

Michal Mohelsky, J.D. | Principal | MMCG Invest, LLC Contact: michal@mmcginvest.com Phone: (628) 225-1110

Engagements are led by Michal Mohelsky, J.D., Practicing Affiliate of the Appraisal Institute. Feasibility studies are prepared under USPAP discipline, aligned with SBA SOP 50 10 8.1 for 7(a) and 504 loans and with 7 CFR Part 5001, Appendix A to Subpart D, for USDA Business and Industry, REAP and Community Facilities financing. Engagements start at $4,900 with fixed-fee scoping. Standard delivery is 9 to 16 business days, with rush turnaround available from 5 days. A senior analyst responds to proposal requests within 12 business hours from the firm's San Francisco office at 27 Maiden Lane, Suite 625.

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