Question 1

What is an SBA feasibility study?

Accepted Answer

An SBA feasibility study is an independent, third-party analysis that evaluates whether a proposed commercial project can generate sufficient cash flow to service its debt. The study examines market demand, competitive landscape, site conditions, and financial projections to produce a debt service coverage ratio (DSCR) that lenders use to make credit decisions. It is not a business plan, not an appraisal, and not an opinion letter. It is an evidence-based analytical document with a defensible conclusion.

Question 2

How much does a feasibility study cost?

Accepted Answer

Fees range from $4,900 to $25,000+ depending on property type and project complexity. A standard gas station, restaurant, or daycare study typically falls in the $4,900 to $12,000 range. Hotels, large multifamily, and complex mixed-use projects can reach $15,000 to $25,000. The fee is fixed before the engagement begins and is payable regardless of the study's conclusion. Most consultants use a 50/50 payment structure: half at engagement, half at delivery.

Question 3

How long does a feasibility study take?

Accepted Answer

Standard delivery is 9 to 15 business days from engagement to final report. Rush delivery in 5 to 7 business days is available at a 25% to 50% premium. The biggest factor that extends the timeline is the borrower's responsiveness to the initial data request. If you provide your documents within 24 hours, the study stays on schedule. Hotel studies take longer (12 to 20 days) because STR data procurement adds 3 to 5 business days.

Question 4

When is a feasibility study required for an SBA loan?

Accepted Answer

A feasibility study is triggered by specific transaction characteristics, not loan size. The most common triggers are special purpose property (hotels, gas stations, car washes), startup business (operating less than one year), ground-up new construction, change of use (converting a property to a different commercial purpose), and high failure rate industries (restaurants, bars, retail). Many lenders also require studies at their own discretion for unfamiliar markets or complex projects.

Question 5

What is the difference between a feasibility study and an appraisal?

Accepted Answer

An appraisal answers 'what is this property worth today?' A feasibility study answers 'can this project generate enough income to service its debt going forward?' The appraisal is retrospective (current value); the feasibility study is prospective (future cash flow). They are prepared by different professionals under different standards (USPAP for appraisals, SBA SOP for feasibility). Most SBA real estate loans require both documents.

Question 6

What is the difference between a feasibility study and a business plan?

Accepted Answer

A business plan is an advocacy document you write to present your project in the best light. A feasibility study is an independent analysis prepared by a third party that evaluates whether market evidence supports your plan. The business plan describes what you want to do; the feasibility study determines whether the market agrees. Your lender needs both. One does not replace the other.

Question 7

What does a feasibility study contain?

Accepted Answer

A complete feasibility study is typically 40 to 80 pages and includes an executive summary with recommendation, project description, site assessment with photographs, market and demographic analysis, competitive landscape inventory, demand analysis and revenue projections, financial pro forma with DSCR calculation, sensitivity and risk analysis, management assessment, conclusion, and appendices including the reliance letter.

Question 8

What is DSCR and why does it matter?

Accepted Answer

Debt service coverage ratio (DSCR) measures how many dollars of cash flow the business generates for every dollar of required debt payments. A 1.30x DSCR means the business generates $1.30 for every $1.00 of loan payments. The SBA minimum for Standard 7(a) loans over $350,000 is 1.15x. For 7(a) Small Loans under $350,000, the minimum is 1.10x. Most lenders require 1.20x to 1.30x. DSCR is the single most important number in the feasibility study.

Question 9

Who prepares a feasibility study?

Accepted Answer

An independent third-party analyst or consulting firm. The SBA does not require specific credentials, but institutional-quality studies are typically prepared by firms affiliated with the Appraisal Institute (Practicing Affiliates, MAI designees, or AI-GRS designees) with demonstrated SBA program experience. The analyst must have no financial interest in the loan's approval. The fee must be fixed regardless of the study's conclusion.

Question 10

Can I prepare the feasibility study myself?

Accepted Answer

No. The entire purpose of a feasibility study is independent, third-party validation. A study prepared by the borrower is not independent and will not be accepted by any SBA lender or processing center. Similarly, a study prepared by someone with a financial interest in the loan's approval (a mortgage broker earning a commission, for example) lacks the independence required.

Question 11

What happens if the feasibility study is negative?

Accepted Answer

A negative or 'not feasible' finding is serious but not always fatal. If the issues are reparable (excessive project scope, aggressive assumptions, fixable operational gaps), the borrower can modify the project and the analyst can prepare a revised study. If the issues are fundamental (oversaturated market, site that cannot support the use, demographics that do not support the business model), the project may need to be abandoned or relocated.

Question 12

Does a positive feasibility study guarantee loan approval?

Accepted Answer

No. The feasibility study is one of five underwriting pillars (character, capacity, capital, collateral, conditions). A positive study strengthens the capacity and conditions pillars but does not override deficiencies in the borrower's credit, equity, or collateral. A strong feasibility study with a weak borrower profile will not produce an approval. However, a positive study significantly increases approval probability when other factors are adequate.

Question 13

What is a special purpose property?

Accepted Answer

A property with unique physical design, special construction materials, or a layout that restricts its utility to the use for which it was built. Hotels, gas stations, car washes, bowling alleys, hospitals, golf courses, and marinas are examples. The SBA lists approximately 27 special purpose property types in SOP 50 10 8 Appendix 3. Special purpose classification triggers feasibility study requirements and, under the 504 program, increases the borrower's equity injection from 10% to 15%.

Question 14

Do all SBA loans require a feasibility study?

Accepted Answer

No. Most SBA loans close without one. The requirement is triggered by specific transaction characteristics (special purpose property, startup, new construction, change of use), not by loan size or program type. An established business acquiring a multipurpose commercial property with 5 years of financial history will likely not need a feasibility study unless the lender requests one at their discretion.

Question 15

How does interest rate affect feasibility?

Accepted Answer

Interest rates determine debt service, which is the denominator in the DSCR calculation. Every 100 basis point increase in the loan rate reduces DSCR by approximately 0.08x to 0.12x on a typical SBA real estate loan. A project that shows 1.30x DSCR at 9.75% may show only 1.14x at 11.75%. Feasibility studies for variable-rate 7(a) loans should include rate sensitivity analysis at Prime +100bps, +200bps, and +300bps scenarios.

Question 16

What is the difference between SBA 7(a) and 504 feasibility requirements?

Accepted Answer

Under 7(a), the lender (or SBA processing center for non-PLP lenders) reviews the feasibility study as part of standard underwriting. Under 504, both the CDC credit committee and the SBA processing center review it, and the study must address property classification (special purpose vs multipurpose) because classification directly determines the equity injection tier (10%, 15%, or 20%).

Question 17

Do SBA Express loans require feasibility studies?

Accepted Answer

The SBA does not mandate feasibility studies for Express loans because they are fully delegated to the lender. However, the lender can and often does require one for Express transactions involving special purpose properties, startups, or high-risk industries. The Express program streamlines SBA processing but does not eliminate the lender's own underwriting standards.

Question 18

What data sources are used in a feasibility study?

Accepted Answer

Institutional-quality studies draw from commercial databases (CoStar for real estate, STR for hotels, ESRI for demographics, Placer.ai for foot traffic), government sources (Census, BLS, DOT traffic counts, FEMA flood maps), industry benchmarks (NACS for c-stores, ICA for car washes, MGMA for medical), and primary research (site visits, competitor surveys, phone interviews). The specific data stack varies by property type and market.

Question 19

Will the analyst visit my property?

Accepted Answer

For projects above $500,000, an in-person site visit should be standard. The analyst photographs the subject property and competitors, observes traffic patterns and access conditions, evaluates the competitive environment firsthand, and documents site conditions that databases cannot capture. Desktop-only studies miss critical information and are viewed with skepticism by experienced credit officers.

Question 20

What is a reliance letter?

Accepted Answer

A reliance letter is a one-page document signed by the analyst that authorizes the lender and the SBA to rely on the feasibility study for underwriting and compliance purposes. Without it, the study is legally prepared for the borrower's benefit only, and the lender has no standing to use it in the credit decision. The reliance letter must be addressed to the lender and the SBA (and the CDC for 504 transactions).

Question 21

Can I use the same feasibility study for multiple lenders?

Accepted Answer

Generally yes, provided the reliance letter is addressed broadly enough to cover additional addressees, or the analyst issues a supplemental reliance letter naming the new lender. The analytical content does not change between lenders, but the reliance letter determines who can formally rely on the document. Most analysts will issue supplemental reliance letters at no cost or a nominal fee.

Question 22

How is a feasibility study for a franchise different?

Accepted Answer

Franchise studies use Item 19 (Financial Performance Representation) data from the Franchise Disclosure Document to benchmark revenue projections. They must verify SBA Franchise Directory listing, analyze territory protection adequacy, model franchise fee structure (royalty, marketing fund, technology fees), and validate whether the franchise unit economics work in the specific trade area. Approximately 60% of franchisors disclose Item 19 data; the remaining 40% require market-data-only projection methodology.

Question 23

What happens after the study is delivered?

Accepted Answer

You forward the final PDF to your lender. For 7(a) PLP lenders, the credit team reviews it internally and incorporates findings into the credit memorandum. For non-PLP 7(a), it goes to the SBA processing center with your complete application. For 504 loans, the CDC credit committee reviews it first, then it goes to the SBA processing center. If the study is institutional quality, the review adds minimal time to the approval process.

Question 24

How do feasibility studies handle new construction projects?

Accepted Answer

New construction studies integrate the GC's construction cost estimate into the total project budget, model a monthly absorption curve from opening through stabilization, stress-test construction delay scenarios (3-month, 6-month), calculate working capital requirements for the pre-revenue and ramp-up period, and project the timeline for DSCR to reach the program threshold. Monthly Year 1 pro forma detail is essential because annual averages mask months of below-breakeven operation during ramp-up.

Question 25

What if my lender asks for changes to the study?

Accepted Answer

Lenders may request clarification on specific analytical points, additional sensitivity scenarios, or supplemental analysis on issues the study flagged. These requests are normal and typically add 3 to 5 business days. The analyst addresses them directly with the lender. Requests to change the conclusion (making a negative study positive) should be refused by the analyst because the conclusion must reflect the evidence, not the desired outcome.

Question 26

Is a feasibility study the same as a market study?

Accepted Answer

No. A market study analyzes demand, supply, and competitive dynamics for a specific property type in a specific market. A feasibility study includes a market study as one component but goes further: it integrates market findings into financial projections, calculates DSCR, performs sensitivity analysis, and issues a go/no-go recommendation. A market study provides data; a feasibility study provides a conclusion backed by financial analysis.

Question 27

Can a feasibility study be updated if market conditions change?

Accepted Answer

Yes. If significant time has passed (typically more than 6 to 12 months) or material market changes have occurred (new competitor entry, major employer closing, rate environment shift), the analyst can prepare an update letter or revised study at a reduced fee. An update letter addresses specific changed conditions and confirms or modifies the original conclusion. A full revision rebuilds the analysis with current data.

Question 28

What documents do I need to provide to the consultant?

Accepted Answer

Typical documents include your business plan or concept overview, site plans or property listing, purchase contract or letter of intent, proposed loan terms from your lender, any existing reports (appraisals, environmental assessments, architectural drawings), franchise disclosure document (if franchise), and 2 to 3 years of financial statements (if acquiring an existing business). Having these ready before engagement can save 3 to 5 days on the study timeline.

Question 29

Are there alternative financing programs that also require feasibility studies?

Accepted Answer

Yes. USDA Business & Industry (B&I) loans and USDA Community Facilities loans often require feasibility studies for projects in eligible rural areas. The analytical content is largely the same as SBA feasibility work, though USDA programs have different eligibility rules, higher loan limits in some cases, and different equity requirements. A feasibility study prepared for SBA is generally acceptable for USDA with minor adjustments.

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