70+ terms defined in plain language for borrowers, lenders, and CDCs
SBA loan program providing long-term, fixed-rate financing for major fixed assets through Certified Development Companies (CDCs). Structure is typically 50% bank first mortgage, 40% CDC/SBA debenture, and 10-20% borrower equity.
504 feasibility guide →SBA's flagship loan program offering government-guaranteed loans up to $5 million for business acquisition, real estate, equipment, working capital, and expansion. Most common SBA loan type with approximately 77,600 approvals in FY2025.
7(a) feasibility guide →The pace at which a new property fills up after opening. Measured in units leased, rooms occupied, or square footage rented per month. Critical for new construction feasibility because it determines how long the property operates below stabilization.
The average revenue earned per occupied hotel room per night. Calculated as total room revenue divided by number of rooms sold. A primary metric in hotel feasibility studies alongside occupancy and RevPAR.
The schedule of principal repayment over the loan term. SBA real estate loans typically amortize over 25 years. Longer amortization produces lower monthly payments and higher DSCR but more total interest paid over the loan life.
A USPAP-compliant valuation of real property prepared by a licensed appraiser. Establishes market value for collateral purposes. Different from a feasibility study, which evaluates business viability rather than property value.
Feasibility vs appraisal →The elevation at which there is a 1% annual chance of flooding, as determined by FEMA. Properties in Special Flood Hazard Areas must elevate structures above the BFE, adding construction cost.
Identification of the revenue level, occupancy rate, or utilization rate at which DSCR equals exactly 1.00x. The most useful single metric for credit decision-making because it quantifies the margin of safety.
A property with known or suspected environmental contamination from prior use. Redevelopment may qualify for EPA grants and tax incentives but requires remediation cost and timeline integration into the feasibility model.
Net operating income divided by property value. Used in appraisals to derive value from income. Not the same as DSCR; cap rate measures return on investment while DSCR measures debt service coverage.
A nonprofit entity certified by the SBA to deliver 504 loans. The CDC funds the second mortgage (typically 40% of project cost) using SBA-guaranteed debentures. CDCs have specific credit committee review obligations.
CDC compliance guide →Converting a property from one commercial purpose to another (e.g., office to medical clinic, restaurant to brewery). A feasibility study trigger because historical operating performance does not apply to the new use.
Property or assets pledged to secure a loan. The appraisal establishes collateral value. SBA loans are not fully collateral-dependent; repayment ability (evaluated by the feasibility study) is the primary underwriting factor.
The group of competing properties against which the subject property is benchmarked. For hotels, the STR comp set provides occupancy and ADR benchmarking. For other property types, the analyst defines the comp set from market research.
A discretionary zoning approval allowing a use that is not permitted as-of-right. Requires public hearing and planning commission approval. Adds 2-6 months to the project timeline and introduces approval uncertainty.
A commercial real estate data platform providing rent comps, occupancy, absorption, cap rates, and transaction data. Primary data source for multifamily, office, retail, industrial, and self-storage feasibility studies.
The internal document prepared by the lender (or CDC for 504) that summarizes the credit analysis and recommendation. The feasibility study's findings are incorporated into the credit memo, which drives the loan approval decision.
In the 504 program, the SBA-guaranteed bond sold to fund the CDC's portion of the loan. Debentures carry fixed rates tied to Treasury yields, typically producing lower rates than variable-rate 7(a) loans.
Net operating income divided by total annual debt service. Measures how many dollars of cash flow the business generates for each dollar of required loan payments. The SBA minimum for Standard 7(a) is 1.15x; for Small Loans, 1.10x.
DSCR requirements guide →Gross potential revenue minus vacancy and collection loss. Represents the realistic revenue baseline before operating expenses are deducted.
The borrower's cash contribution to the project. SBA 7(a) typically requires 10%. SBA 504 requires 10% (multipurpose), 15% (special purpose or startup), or 20% (special purpose + startup). Source of equity must be documented.
A geographic information systems and demographic data provider. Delivers trade area demographics, consumer spending profiles, Tapestry segmentation, and drive-time analysis used in feasibility study market analysis.
An independent, third-party analysis evaluating whether a proposed project can generate sufficient cash flow to service its debt. Produces a DSCR projection, risk analysis, and go/no-go recommendation for SBA lending purposes.
Complete beginner's guide →A legal document franchisors must provide to prospective franchisees. Item 19 (Financial Performance Representation) is the most relevant section for feasibility studies, providing actual unit-level financial data when disclosed.
Franchise feasibility guide →Movable property used in business operations. Hotels budget 4-5% of revenue annually for FF&E reserve. FF&E cost is part of total project cost and affects both the loan amount and the operating expense structure.
Federal agency that maps flood hazard areas. FEMA flood zone designation determines whether flood insurance is mandatory and whether construction elevation requirements apply.
Areas identified by FEMA as having a 1% annual chance of flooding (Zones A, AE, V, VE). Properties in SFHAs require mandatory flood insurance ($2,000 to $30,000+ annually) and may face elevated construction requirements.
The value of a business as an operating entity, including tangible assets plus intangible value (customer relationships, brand, systems). Relevant in acquisition feasibility because the purchase price often exceeds tangible asset value.
The portion of a business purchase price that exceeds the fair market value of identifiable tangible and intangible assets. Goodwill has zero collateral value for SBA purposes but can be financed under 7(a) if cash flow supports the total debt service.
A fee paid to the SBA for guaranteeing the loan. For FY2026, fees range from 2% to 3.75% of the guaranteed portion depending on loan size. The fee is typically financed into the loan rather than paid out of pocket.
Federal agency that designates Health Professional Shortage Areas (HPSAs). HRSA data is used in medical office feasibility studies to document provider shortages and unmet healthcare demand.
Section of the FDD where franchisors optionally disclose actual financial performance data for existing units. Approximately 60% of franchisors disclose Item 19. When available, it is the most valuable data input for franchise feasibility projections.
The time from a property's opening to stabilized occupancy. Self-storage: 24-42 months. Hotels: 18-30 months. Multifamily: 12-18 months. During lease-up, DSCR is typically below threshold, requiring working capital reserves.
Loan amount divided by appraised property value. Determines how much leverage the lender is extending. SBA loans can reach 80-90% LTV. LTV is an appraisal-driven metric; DSCR is a feasibility-driven metric.
The most advanced professional designation awarded by the Appraisal Institute for commercial real estate valuation and analysis. Signals senior-level expertise in property valuation and analytical methodology.
The analytical section of a feasibility study that evaluates trade area demographics, economic conditions, and demand drivers to determine whether sufficient market support exists for the proposed project.
Market analysis methodology →Trade association providing performance benchmarks for convenience stores and gas stations. NACS data includes sales per square foot, category margins, and operating metrics used in c-store feasibility studies.
Trade association representing CDCs in the 504 program. NADCO best practice guidance is referenced by SBA examiners during CDC reviews and informs feasibility study quality expectations.
Federal database mapping wetland locations maintained by the U.S. Fish & Wildlife Service. Used in feasibility study site screening to identify potential wetland constraints before formal delineation.
Total revenue minus total operating expenses. The cash flow available to service debt, fund reserves, and provide owner return. NOI is the numerator in the DSCR calculation.
The percentage of available capacity that is in use. Hotels measure rooms occupied; self-storage measures SF rented; multifamily measures units leased. Stabilized occupancy is the long-term equilibrium rate used for DSCR projections.
Data service providing fuel pricing data including rack prices, retail margins, and regional benchmarks. Primary data source for gas station feasibility studies.
A report prepared by a licensed environmental professional under ASTM E1527-21 that evaluates whether a property has recognized environmental conditions. The feasibility study screens for whether Phase I is recommended but does not replace it.
Competing facilities that are under construction, in permitting, or publicly announced but not yet open. The most commonly omitted element in low-quality feasibility studies and the most dangerous to overlook.
A foot traffic analytics platform providing visitor counts, visit duration, trade area origin, and cross-shopping patterns. Used in retail, restaurant, fitness, and consumer-facing property feasibility studies.
SBA designation allowing lenders to make credit decisions on 7(a) loans under delegated authority without submitting to the SBA processing center. PLP lenders process loans faster but apply their own underwriting standards.
An Appraisal Institute designation for firms that operate under AI standards with staff pursuing or holding AI designations. Signals adherence to recognized professional analytical standards.
The Wall Street Journal Prime Rate, currently 6.75% as of April 2026. The base rate for most SBA 7(a) variable-rate loans. SBA maximum rates are calculated as Prime plus a spread that varies by loan size.
A projected financial statement showing expected revenue, expenses, NOI, and DSCR over a multi-year period. The feasibility study's pro forma is built from market data and industry benchmarks, not from the borrower's business plan.
Financial projections methodology →SBA offices (Sacramento, Little Rock, Fresno, Citrus Heights) that review loan applications for non-PLP lenders. Processing center analysts review feasibility studies and may request clarification or additional analysis.
A signed document authorizing the lender and SBA to rely on the feasibility study for underwriting purposes. Must be addressed to the lender and SBA. Without it, the study has no standing for credit decision use.
Hotel performance metric calculated as ADR multiplied by occupancy rate, or total room revenue divided by total available rooms. RevPAR captures both pricing and volume in a single metric.
Car wash performance metric measuring average revenue per wash transaction. Includes base wash price plus upsells. Blended RPC across wash packages is a key input in car wash feasibility projections.
Federal agency that guarantees loans made by participating lenders to qualifying small businesses. The SBA does not lend directly through its 7(a) and 504 programs; it provides a guarantee that reduces lender risk.
A streamlined 7(a) loan product with faster processing and reduced documentation. Fully delegated to the lender. The SBA does not mandate feasibility studies for Express loans, but lenders may require them.
Express feasibility guide →A registry maintained by the SBA listing franchise systems whose agreements meet SBA eligibility requirements. Franchises not listed are ineligible for SBA financing regardless of financial feasibility.
Stress testing of the base case projections under adverse scenarios (revenue reduction, expense increase, rate increase, absorption delay). Identifies how much the project can underperform before DSCR drops below threshold.
Square feet of a specific property type per resident in the trade area. Used in self-storage feasibility to measure market saturation. Equilibrium is typically 7-9 SF per capita in urban/suburban markets.
FEMA-designated areas with a 1% annual flood probability. Properties in SFHAs face mandatory flood insurance requirements and may face elevated construction requirements that add to project cost.
Under SOP 50 10 8, a 7(a) loan of $350,000 or less (reduced from $500,000 effective June 2025). Small Loans have a reduced DSCR minimum of 1.10x and qualify for streamlined underwriting.
SBA Standard Operating Procedure governing 7(a) and 504 loan processing and underwriting. Effective June 1, 2025. Establishes DSCR thresholds, equity injection requirements, special purpose property definitions, and underwriting standards.
A property with unique design, materials, or layout restricting its utility to the use for which it was built. Defined in SOP 50 10 8 Appendix 3. Triggers feasibility study requirements and higher equity injection under 504.
Special purpose guide →The long-term equilibrium occupancy rate after the initial lease-up or ramp-up period. The stabilized year's DSCR is the primary metric driving the credit decision.
The primary data source for hotel performance benchmarking. Provides occupancy, ADR, and RevPAR data by comp set, market, and submarket. Custom STR reports take 3-5 business days to generate.
The geographic boundary within which the subject property draws the majority of its customers. Defined by radius, drive-time, corridor, or destination draw depending on property type.
Trade area methodology →Federal agency regulating development in wetlands and waters of the United States under Clean Water Act Section 404. Issues Nationwide Permits and Individual Permits for wetland fill activities.
USDA-guaranteed loan program for businesses in eligible rural areas. Maximum loan up to $25 million. May serve as alternative or complement to SBA financing for rural projects.
The national standard for real estate appraisal, administered by The Appraisal Foundation. Governs appraisal methodology, ethics, and reporting. Feasibility studies operate under SBA SOP standards, not USPAP.
A deduction from gross potential revenue accounting for physical vacancy, lease concessions, and uncollectable accounts. Typically 5-10% for stabilized commercial properties; higher during lease-up periods.
Relief from a specific zoning requirement (setback, height, parking count) granted by the board of adjustment. Requires demonstrating hardship. Adds 2-6 months to the project timeline.
Cash reserves needed to fund operations during the ramp-up period before the business reaches stabilized cash flow. For new construction, working capital can represent 5-15% of total project cost.
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