From our researchOn mature SBA 7(a) cohorts, 7.58 percent of full-service and 8.19 percent of limited-service restaurant loans have been charged off. Across 7(a) and 504 combined, 9.4 percent of seasoned restaurant loans approved FY2010 to FY2021 reached adverse resolution, a broader measure that also counts SBA purchases and liquidations, against 7.3 percent for all industries. See the full industry analysis.
Trade area analysis, concept viability, and financial modeling for franchise and independent restaurant operations
Restaurants are not on SBA's list of special purpose properties, which names hotels, gas stations, car washes, marinas and similar single-use buildings. A restaurant building can be converted to other commercial uses, so the special purpose rules do not apply. Equity depends on the business's age instead. Under 13 CFR 120.910, a 504 project needs at least 10% from the borrower if the business is established, and at least 15% if the business has operated for two years or less, which covers most new restaurants. On 7(a), start-ups and complete changes of ownership need at least 10%. SOP 50 10 8.1, in effect since October 1, 2026, tightened the rules for buying an existing restaurant.
The popular claim that most restaurants fail in their first year does not hold up. Researchers from the Bureau of Labor Statistics and UC Berkeley tracked 81,000 full-service restaurants in BLS microdata and found that 17% of independent restaurant start-ups closed in their first year, compared with 19% of other service start-ups, with a median lifespan of about 4.5 years. The risk is real but it comes later: margins are thin, and the first four years decide whether a concept survives. No SBA rule requires a feasibility study on every loan; under 13 CFR 120.160(b), SBA may require one. In practice, lenders and CDCs commonly order one for start-ups, ground-up construction, franchise conversions and acquisitions with a major concept change.
From FY2010 through FY2026, SBA disbursements to restaurant projects totaled 82,425 loans and $35.02 billion in approved 7(a) and 504 financing, averaging $425,000 per deal. 7(a) accounted for 90.9% of the count with 504 taking the remainder, and 13,040 fresh approvals are dated FY2024 or later.
| Disbursed loans (FY2010–FY2026) | 82,425 |
| Approved volume | $35.02 billion |
| Average loan size | $425,000 |
| 7(a) share | 90.9% |
| Approvals since FY2024 | 13,040 |
Among the 59,298 seasoned loans nationally (approvals FY2010–FY2021), 9.4% reached adverse resolution — purchased, liquidated, or charged off — against 7.3% across all industries. That places the restaurant class materially above the all-industry benchmark, and lenders weigh that gap in their credit decisions.
The five states with the most restaurant SBA loans in the FY2010–FY2026 cohort are California (10,385), Texas (6,449), New York (4,922), Florida (4,028), and Ohio (3,970).
Source: SBA 7(a) and 504 FOIA loan-level data, as of March 31, 2026. Disbursed loans only. See data methodology.
Restaurant loans perform worse than the SBA average, but not by the margin the industry's reputation suggests. Across 82,425 loans averaging $425,000, 9.4% of seasoned loans reached adverse resolution against 7.3% for all industries. The charge-off rates on mature 7(a) cohorts, 7.58% for full-service and 8.19% for limited-service, measure a narrower event: loans actually written off, not loans SBA purchased and later recovered. A credit committee reads both, and the study has to answer the question behind them: will this concept, at this site, cover its debt through the first four years?
Equity follows the age of the business, not the building. An established restaurant on 504 needs 10%; a restaurant that has operated two years or less needs 15%. On 7(a), start-ups and complete changes of ownership need at least 10%. The study shows where the equity comes from and how much working capital is left after opening.
Labor and food are where projections fail. Food and labor together take roughly two-thirds of sales, and wage floors now differ by more than $14 an hour between states, from a $5.50 tipped wage in Ohio to $21.65 in Tukwila, Washington. USDA forecasts restaurant menu prices up 3.5% in 2026 and 2.6% in 2027, so a projection that passes higher costs straight through to menu prices needs a local reason. The study models the wage schedule that actually applies at the site and stress-tests the food cost of the concept's main proteins.
For a franchise, the brand must be on the SBA Franchise Directory today, not when the franchise agreement was signed. Brands that did not sign SBA's new franchisor certification by June 30, 2026 were removed from the Directory. The study confirms the listing and ties the revenue projection to the franchisor's Item 19 disclosure where one exists.
SBA lenders disbursed 82,425 7(a) and 504 loans for restaurant projects between FY2010 and FY2026, totaling $35.02 billion in approved financing at an average of $425,000.
Among the 59,298 seasoned restaurant loans (approvals FY2010–FY2021), 9.4% reached adverse resolution, against 7.3% across all industries.
90.9% of restaurant SBA loans in the FY2010–FY2026 cohort ran through the 7(a) program, with the remainder financed under 504.
Often, but not because SBA requires it. No SBA regulation requires a feasibility study on every loan; under 13 CFR 120.160(b), SBA may require one. Lenders and CDCs commonly order one under their own credit policy for start-up restaurants, ground-up construction, franchise conversions and acquisitions that change the concept, because those files depend on projected rather than historical cash flow.
Yes. Start-up restaurants are eligible for SBA 7(a) and 504 loans. On 7(a), plan on at least 10% equity; on 504, a business that has operated two years or less needs at least 15%. Lenders usually ask for a feasibility study on a start-up because repayment depends on projected sales.
Less than the common myth suggests. BLS and UC Berkeley research on 81,000 full-service restaurants found 17% of independent start-ups closed in their first year, against 19% of other service start-ups. On SBA paper, seasoned restaurant loans reached adverse resolution at 9.4%, against 7.3% for all industries.
On mature 7(a) cohorts, 7.58% of full-service and 8.19% of limited-service restaurant loans have been charged off. Counting SBA purchases and liquidations as well, 9.4% of seasoned 7(a) and 504 restaurant loans approved FY2010 to FY2021 reached adverse resolution, against 7.3% for all industries.
At least 10% on a 7(a) start-up loan. On a 504 loan, the regulation requires 15% when the business has operated two years or less and 10% for an established business. Lenders can ask for more on higher-risk concepts.
Yes, if the brand is on the SBA Franchise Directory. Brands that did not sign SBA's new franchisor certification by June 30, 2026 were removed, so check the brand's current listing before applying.
Yes. Selling alcohol does not make a business ineligible. A bar is ineligible if more than one-third of its revenue comes from legal gambling, if it operates as a private club, or if it presents live performances of a prurient sexual nature.
No. SBA's special purpose list covers single-use buildings such as hotels, gas stations and car washes. Restaurant equity depends on the age of the business, not the building.
No. A business plan describes the concept and how the owner will run it. A feasibility study is an independent test of whether the concept, at a specific site, generates enough sales to cover its costs and repay the loan, using trade-area demand, comparable restaurants and stressed coverage.
Anonymized summaries of comparable feasibility studies we have delivered, including scope, methodology, and lender outcome.
Every restaurant project we underwrite follows the same lender ready process: independent market analysis, site and technical review, and financial projections tested against SBA SOP 50 10 8 standards. Our SBA feasibility study consultants guide explains scope, timing, deliverables, and what lenders and CDCs expect in the report.
These are the SBA rules a restaurant study has to satisfy. Rules for buying an existing restaurant changed under SOP 50 10 8.1, effective October 1, 2026.
| Rule | What it means for the file |
| Special purpose status | Restaurants are not special purpose property; no special purpose equity or appraisal rules apply |
| 504 equity | 10% for an established business; 15% if the business has operated two years or less (13 CFR 120.910) |
| 7(a) equity | At least 10% for start-ups and complete changes of ownership |
| Buying an existing restaurant (7(a)) | 1.25x debt service coverage on historical cash flow; 10% equity that cannot be waived; quality of earnings report at a $3 million or higher purchase price |
| Loan term on an acquisition | Up to 25 years only when at least 51% of the proceeds finance real estate; the business portion alone is shorter |
| Franchise brands | Must be on the SBA Franchise Directory; brands without the new certification were removed after June 30, 2026 |
| Ghost kitchens and shared kitchens | Ineligible when income is rent for space; eligible only with membership-dues revenue, no assigned space and owner-supplied equipment |
| Bars, brewpubs and entertainment | Alcohol sales are not a bar to eligibility; ineligible if more than one-third of revenue comes from legal gambling, if the business is a private club, or if it presents prurient live performances (13 CFR 120.110) |
| Feasibility study | Not required by rule; SBA may require one (13 CFR 120.160(b)), and lenders commonly order one for start-ups and construction |
The feasibility study scope varies substantially by restaurant segment. Each category has different revenue drivers, cost structures, competitive dynamics, and risk profiles.
| Segment | Avg Check | Revenue/SF | Food Cost | Labor Cost | Typical SBA Loan |
|---|---|---|---|---|---|
| Quick Service (QSR) | $8 to $14 | $450 to $750 | 28% to 32% | 25% to 30% | $350K to $1.5M |
| Fast Casual | $12 to $20 | $500 to $900 | 30% to 34% | 27% to 32% | $500K to $2M |
| Casual Dining | $18 to $35 | $350 to $600 | 30% to 35% | 30% to 35% | $750K to $3M |
| Fine Dining | $50+ | $300 to $550 | 32% to 38% | 32% to 38% | $1M to $5M |
| Coffee / Bakery | $6 to $12 | $500 to $1,000 | 25% to 30% | 30% to 35% | $250K to $800K |
| Bar / Brewpub | $15 to $30 | $400 to $700 | 25% to 30% (beverage-weighted) | 28% to 33% | $500K to $2.5M |
Revenue per square foot is the efficiency metric that drives restaurant feasibility. A QSR doing $700/SF on a 2,000 SF footprint generates $1.4 million. A casual dining concept doing $400/SF on 4,500 SF generates $1.8 million but with a much higher build-out cost and labor requirement. The feasibility study benchmarks the subject concept's projected revenue per SF against segment averages and the specific competitive set to determine whether the revenue assumption is credible.
Restaurant trade areas are tight and segment-specific. A QSR with a drive-through draws from a 1 to 3 mile radius. A casual dining restaurant with a full bar draws from 3 to 7 miles. A fine dining destination may draw from 10 to 20 miles. The feasibility study defines the trade area based on the specific concept and analyzes the demographics that drive dining demand.
Population density. The minimum population to support a restaurant varies by segment. There is no fixed population threshold that works across markets. The study measures drive-time population, daytime workers and the competing seats already serving the trade area, then tests whether the concept's share of that demand produces the covers the projection assumes.
Household income. Average check correlates directly with household income in the trade area. A fast casual concept with a $15 average check targets households earning $50,000 to $100,000. A fine dining concept at $65 average check needs a critical mass of households above $100,000. If the trade area income profile does not support the concept's pricing, the study will flag the mismatch.
Daytime vs. residential population. Restaurants near office parks and commercial districts rely on daytime population (workers) for lunch revenue and must calculate separate lunch and dinner demand profiles. Residential locations rely on evening and weekend traffic. A study that uses only residential population to project demand for a restaurant in a business district will understate lunch potential and overstate dinner potential.
Age distribution. Different age cohorts have different dining-out frequency and spending patterns. The 25-to-44 age group has the highest dining-out frequency. The 55+ cohort has the highest average check but lower frequency. Family-oriented concepts need households with children under 18. The study analyzes the trade area's age profile against the concept's target demographic.
The franchise/independent distinction is the single most important variable in restaurant feasibility analysis for SBA lending. It changes the data available, the risk profile, and the lender's confidence level.
| Dimension | Franchise | Independent |
|---|---|---|
| Revenue projection basis | Item 19 FPR (Financial Performance Representation) if disclosed; system-wide averages | No system data; must project entirely from market comparables and concept benchmarking |
| Failure rate | Lower (established systems, training, supply chains) | Higher (no proven model, operator-dependent) |
| Build-out cost certainty | High (franchisor provides specs and approved contractor lists) | Variable (custom design, no standard specifications) |
| Operating model | Prescribed (franchisor dictates menu, suppliers, operations) | Flexible (owner controls all decisions) |
| Ongoing fees | Royalty (4-8% of gross) + marketing (2-4%) + technology fees | None |
| SBA Franchise Directory | Must be listed on SBA Franchise Directory to be SBA-eligible | Not applicable |
| Lender comfort level | Higher (known brand, proven economics) | Lower (unproven concept, operator risk) |
| Feasibility study complexity | Lower (more data available) | Higher (must build case from scratch) |
For franchise restaurants, the Franchise Disclosure Document (FDD) Item 19 is the most valuable data source available. Item 19, when disclosed, provides financial performance representations: actual revenue, cost of goods, and sometimes unit-level profitability for the franchise system. Not all franchisors disclose Item 19 (it is voluntary), but when available, it provides a foundation for revenue projections that independent concepts cannot match.
The feasibility study cross-references Item 19 data against the specific trade area conditions. A franchise system that averages $1.2 million per unit nationally may perform at $900,000 in a smaller market or $1.5 million in a high-traffic location. Item 19 provides the starting point, but the trade area analysis determines where the subject location falls within the system's performance distribution.
SBA Franchise Directory compliance. If a brand meets the FTC definition of a franchise, it must be on the SBA Franchise Directory to receive SBA financing. SBA reinstated the Directory on June 1, 2025 and required every franchisor to sign a new SBA certification by June 30, 2026; brands that did not sign were removed. Where the Directory's certification column does not show a 'Y', the lender must still use the SBA addendum to the franchise agreement. For 7(a) loans, the franchise documents must be in the file before any loan proceeds are disbursed. The feasibility study checks the brand's current listing as a threshold step before the full analysis begins.
Food cost (cost of goods sold as a percentage of food revenue) is the primary controllable expense in restaurant operations. The feasibility study benchmarks the projected food cost against segment norms and the specific concept's menu pricing and supplier costs.
Target food cost ratios vary by segment: QSR targets 28% to 32%, fast casual targets 30% to 34%, casual dining targets 30% to 35%, and fine dining accepts 32% to 38% because higher-quality ingredients support higher check averages. A concept projecting a 25% food cost in a casual dining format is either understating ingredient costs or overstating menu prices. A concept projecting 40% food cost is likely not viable unless offset by unusually high check averages or beverage revenue.
We model food cost sensitivity because it is highly susceptible to commodity price fluctuations, supply chain disruptions, and menu mix shifts. A 3-percentage-point increase in food cost (from 30% to 33%) on a $1.5 million restaurant reduces annual gross profit by $45,000, which can move the DSCR from comfortable to marginal. The stress test models this scenario explicitly. USDA's Economic Research Service forecasts food-away-from-home prices up 3.5% in 2026 and 2.6% in 2027 (Food Price Outlook, September 25, 2026), while protein costs, beef in particular, are forecast to rise faster. Menu prices give limited room to absorb ingredient increases, so protein-heavy concepts get a separate stress case.
Labor is the second-largest expense in restaurant operations and the most volatile. The feasibility study must assess the local labor market specifically for hospitality workers, not just the general unemployment rate.
Wage analysis. We survey prevailing wages for cooks, servers, hosts, dishwashers, and management in the trade area using Bureau of Labor Statistics data, Indeed/Glassdoor job postings, and direct market observation. State and local minimum wage laws directly affect the labor cost model. In 2026 they range from the $7.25 federal floor to $17.13 statewide in Washington, $18.40 in the District of Columbia from July 1, 2026, $20.00 for California fast food chains covered by AB 1228, and $21.65 in Tukwila, Washington. Washington and California allow no tip credit, so servers earn the full minimum before tips. The federal deduction for qualified tips lowers servers' income tax but does not change the employer's wage or payroll tax cost. Tipped employee wage rules vary by state and significantly impact total labor cost for full-service concepts.
Competition for labor. A restaurant opening within 2 miles of a distribution center paying $20/hour for warehouse work faces a fundamentally different labor market than one in a college town with abundant part-time workers. The feasibility study identifies the competing employers in the trade area and assesses whether the restaurant's wage structure can attract and retain adequate staff. Chronic understaffing leads to reduced hours, service quality decline, and revenue erosion that no financial projection can overcome.
Total labor cost modeling. We model total labor cost as a percentage of revenue: 25% to 30% for QSR (lower touch service), 27% to 32% for fast casual, 30% to 35% for casual dining, and 32% to 38% for fine dining. These ranges include wages, payroll taxes, workers' compensation, and benefits. A concept that projects labor cost below the segment floor must explain the structural reason (heavy automation, counter-service-only, limited menu) or the projection will not be credible.
Revenue per square foot is the ultimate efficiency metric for restaurant feasibility. It normalizes revenue across different-sized locations and directly indicates whether the concept can generate sufficient sales from the available space to cover occupancy costs, labor, food cost, and debt service.
We benchmark the subject concept against three tiers: the segment average (from NRA and IBISWorld data), the competitive set average (from comparable restaurants in the trade area), and the franchise system average (Item 19 data, if available). A projection that exceeds all three benchmarks requires strong justification. A projection that falls below all three raises questions about concept viability at the proposed location.
For drive-through QSR concepts, we calculate revenue per square foot on both the building footprint and the total site area (including drive-through lane, parking, and outdoor seating). A 2,500 SF QSR on a 20,000 SF lot generating $1.5 million produces $600/SF on the building but only $75/SF on the site, which matters for ground-up construction where land cost is a significant project component.
Restaurant feasibility studies typically range from $4,900 to $10,000. Franchise concepts with available Item 19 data in well-documented metro markets fall toward the lower end. Independent concepts requiring primary market research, multi-unit projects, or locations in secondary markets with limited comparable data push toward the upper end.
Standard delivery runs 7 to 10 business days, among the fastest turnaround of any property type because restaurant trade areas are compact and market data is typically abundant in the types of commercial corridors where restaurants locate. For detailed pricing across all property types, see our cost and timeline guide.
Request a complimentary project assessment. Provide your concept type (QSR, fast casual, casual dining, fine dining), franchise or independent, location, and SBA program, and we will respond with a tailored scope of work and fixed-fee quote within 24 hours.
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