A feasibility study and an appraisal are only worth what their independence is worth. When the same firm also arranges the loan or raises the equity, the analysis stops being a test of the project and becomes part of the sales process. This article sets out the regulatory backdrop, the licensing and securities questions the arrangement raises, and the questions a lender, investor or borrower should ask before relying on the report.
A feasibility study and an appraisal are commissioned to answer a question honestly, not to help a transaction happen. When the firm preparing that analysis also arranges the debt or raises the equity, its compensation begins to depend on the project proceeding. That creates a structural conflict that a lender, investor or government reviewer can see from the outside, and it raises separate questions about lending, brokerage and securities regulation that vary by state and by transaction type.
Direct answer: the conflict is not that a firm is paid. It is that the firm is paid more when the answer is favourable. A feasibility consultant paid a fixed professional fee earns the same amount whether the conclusion is positive or negative. A consultant who also earns a placement fee, a success fee or a percentage of the financing earns substantially more when the project goes ahead. The analysis and the commission point in the same direction, and the reader of the report cannot tell which one produced the conclusion.
Consider the arithmetic without naming anyone. A study might be quoted at $15,000. A success fee of one percent on a $15 million loan is $150,000. Once both are on the table, the professional fee is no longer the economically significant part of the engagement; it is the entry ticket to the part that matters. Nothing about that arrangement forces a dishonest conclusion. It simply means the incentive to reach a favourable one is ten times larger than the incentive to be right, and a credit committee is entitled to weigh that.
| Compensation structure | What the professional is actually paid for | Conclusions the professional can afford to reach |
|---|---|---|
| Fixed professional fee, quoted before work begins | The analysis, whatever it finds | Feasible; feasible subject to conditions; feasible only on revised assumptions; not feasible |
| Fixed fee plus a success fee on closing | The analysis, and the transaction completing | Every unfavourable conclusion forfeits the larger part of the engagement |
| Contingent only — paid if financing is obtained | The transaction completing | An unfavourable conclusion pays nothing at all |
Structural comparison only. No figures above describe any particular firm, and the arithmetic in the preceding paragraph is illustrative.
The appraisal profession settled this question earlier and more formally than the consulting profession did, because appraisals sit directly inside regulated bank lending. Interagency appraisal and evaluation guidance issued by the federal banking agencies directs regulated institutions to maintain independence between the people who order and review appraisals and the people who produce loans. The purpose is to keep the valuation from being shaped by the desire to make the loan.
Professional ethics point the same way for appraisers bound by them. The Appraisal Institute’s published Code of Professional Ethics binds its own members, and it addresses compensation that is contingent on reporting a predetermined value, on a direction in value that favours the client, on the amount of a value opinion, on the attainment of a stipulated result, or on the occurrence of a subsequent event directly related to the appraiser’s opinion. Appraisers who are not members are governed instead by the standards applicable to their assignment, their state credential and the engagement itself.
The last of those bears most directly on a fee that increases when the loan closes, although whether it reaches any particular arrangement depends on the assignment and the facts. Where real estate is central to a transaction, the distinction between the two disciplines is worth understanding on its own terms — see feasibility study versus appraisal and commercial real estate appraisal.
An appraisal is an opinion of value supported by evidence. If the appraiser earns more when the transaction completes, then every judgement call in the report — which comparables to use, how to adjust them, which income assumptions to accept, how much to deduct for deferred maintenance — carries a quiet financial pull in one direction. The appraiser need not be dishonest for that to matter. Valuation involves discretion, and discretion exercised under an incentive is not independent discretion.
This is also why lenders do not, as a rule, let borrowers choose and pay the appraiser directly on a closing-contingent basis. The whole architecture of appraisal independence exists to break the link between the value conclusion and anyone’s commission.
Feasibility analysis is less heavily regulated than appraisal, but the logic transfers without modification. A feasibility study asks whether a project can realistically achieve the revenue, margins and cash flow assumed, and whether the resulting cash flow can service the debt proposed. Those conclusions are built from assumptions that require judgement: absorption pace, achievable pricing, staffing costs, ramp-up period, competitive response, construction contingency, the discount rate.
Each of those assumptions can be set defensibly at more than one level. Nudge four or five of them toward the optimistic end of a defensible range and a project that does not service its debt becomes a project that does. No individual number is indefensible. The report is still, in aggregate, wrong. An analyst with a financial interest in the loan being made has a financial reason to nudge. A fixed fee does not remove every source of pressure — the wish for repeat instructions is real — but it does remove that one.
The practical test of independence is simple: can the report conclude that the project is not feasible, and what happens to the firm’s revenue when it does?
An independent consultant paid a fixed fee delivers an unfavourable conclusion, is paid in full, and has done the job the client actually needed. That conclusion often saves the client far more than the fee, because it prevents a sponsor from putting equity into a project that will not work and prevents a lender from booking a loan that will not be repaid. A consultant whose real revenue depends on the financing closing has to write off the majority of the engagement in order to say the same thing. Some will do it. It is an unnecessary test to impose on anyone, and the reader of the report has no way to know how it was resolved.
This is the same reasoning behind our note on independent determinations and our guidance on choosing an independent feasibility study consultant.
Beyond the ethics, there is a regulatory dimension that consultants sometimes overlook. Arranging or brokering commercial loans is a licensed activity in a number of states. California’s Financing Law, administered by the Department of Financial Protection and Innovation, requires a licence to make or broker commercial loans, subject to defined exemptions. New York regulates disclosure obligations for providers and brokers of certain commercial financing transactions. Other states impose their own lender or broker licensing and registration regimes, and the requirements differ by transaction type, loan size, borrower type and exemption.
The point is not that any specific arrangement is unlawful. It is that a consulting firm which begins soliciting lenders on a client’s behalf for compensation has moved from an analytical activity into an activity that several states regulate, and it needs to know which of those regimes apply where it operates.
Regulators generally look at what is being done rather than at what it is called. Identifying prospective lenders for a client, soliciting them, presenting the transaction, negotiating terms and being paid for that work will usually be assessed on its substance. A job title of consultant, advisor or capital markets specialist does not determine the analysis. Neither does describing the payment as a consulting fee rather than a commission, if it is calculated on the financing obtained.
Where a firm helps a project raise equity rather than debt, the regulatory question becomes federal as well as state. Under the federal securities laws a person who effects transactions in securities for the account of others generally must be registered as a broker or associated with a registered broker-dealer, unless an exemption applies. Interests in a project entity offered to passive investors are frequently securities. Helping to place them for compensation is therefore an activity with a registration question attached.
The single factor most consistently associated with broker status is transaction-based compensation — being paid a percentage of, or an amount contingent upon, the capital raised. A firm that charges a flat professional fee for analysis, paid whether or not any capital is raised, is in a materially different position from one that takes a percentage of a completed raise. Where a feasibility consultant proposes the latter, that is a question for securities counsel before the engagement letter is signed, not after.
Two variations come up often enough to be worth naming. First, private capital is still capital: interests sold to private-equity funds, family offices or accredited individuals can be securities, and the private nature of the offering does not by itself remove the registration question for the person placing it. Second, a firm that prepares a valuation or feasibility analysis for a business and then finds a buyer for that business may be engaged in activity that raises the same question, particularly where the transaction is structured as a sale of equity and the compensation is a percentage of the deal.
This is also why our own transaction-diligence work is scoped the way it is: analysis is sold as analysis, and the firm does not take a success fee on a completed deal.
Government-guaranteed lending brings the issue into sharper focus, because the taxpayer stands behind part of the loss. USDA’s guaranteed lending framework contemplates a feasibility study prepared by an independent qualified third party, and its programme regulations address conflicts of interest. A consultant whose compensation depends on the guaranteed loan being approved is difficult to present to a reviewer as an independent third party, whatever the engagement letter calls the arrangement.
Whether a particular relationship is acceptable in a particular transaction is a question for the lender and the USDA Rural Development state office handling the application, and it should be raised before the study is commissioned rather than after the file has been submitted. Programme mechanics are covered separately in our guide to USDA B&I loans and the OneRD framework and in USDA OneRD guaranteed loan feasibility studies.
Two analogies make the structure obvious to a non-specialist.
The first is officiating. A referee is trusted because the referee does not care which side wins. A referee paid a bonus by one team would not be accused of cheating on that basis alone, but nobody would treat the officiating as neutral again, and the accusation would be unanswerable because the incentive is visible in the arrangement itself.
The second is closer to home. A home inspector who also owned the repair company would have an obvious reason to find repairs. Most buyers understand instinctively why that is a bad arrangement, and they understand it without needing to believe any particular inspector is dishonest. The commercial version is the same structure with more zeros: a firm that assesses whether a project can support debt, and is then paid for placing that debt, is being asked to referee a game it has money on.
A softer version of the arrangement is common: the consultant does not broker the loan, but receives a referral fee from the lender who ultimately makes it. This is sometimes presented as an administrative courtesy. It is not. It gives the analyst a financial interest in two things at once — that the loan is made at all, and that it is made by that particular lender rather than by the one offering the client better terms.
The reader of the report has no way to separate the analysis from the fee. Disclosure improves matters and should be the minimum standard wherever any such relationship exists, but a disclosed conflict remains a conflict. The cleaner answer is not to accept the fee.
Some organisations hold an analytical practice and a financing practice under one corporate roof and argue that separation resolves the problem. It can, but only where the separation is real and visible to the reader of the report. The safeguards that make such a structure defensible are demanding.
Even with all of that in place, some lenders and agencies will still prefer analysis from a party with no affiliation at all, and that preference is not unreasonable. An organisational chart is a description of intent; the incentive is what actually operates.
A fair objection at this point is that feasibility consultants necessarily know a great deal about how projects are financed, and that this knowledge is useful to clients. That is true, and explaining how the financing landscape works is a normal part of competent advisory work. The line falls between explaining and transacting.
| Activity | Character | Who normally performs it |
|---|---|---|
| Explaining which programmes exist and what they generally require | Information and analysis | Feasibility consultant or advisor |
| Analysing whether a project can service the debt proposed | Analysis | Feasibility consultant |
| Preparing an independent opinion of value | Valuation | Appraiser |
| Preparing analysis a client can present to any lender | Analysis | Feasibility consultant |
| Identifying named lenders and soliciting them for the client | Placement | Appropriately licensed broker or lender |
| Negotiating loan terms on the client’s behalf for compensation | Brokerage | Appropriately licensed broker |
| Soliciting investors to buy interests in the project | Securities activity | Registered broker-dealer or associated person |
The first four rows describe work a consultant can generally do while remaining the party that tests the assumptions. The last three describe work that pays on the transaction, which is why, in our view, it is better kept with a separate and appropriately licensed party.
A fixed professional fee, quoted before work begins, does three things at once. It pays for the work rather than for the answer, so the conclusion carries no financial consequence for the analyst. It makes the engagement predictable for the client, who knows the cost before committing. And it is straightforward to explain to a credit committee, an investment committee or a government reviewer, none of whom then has to model the analyst’s incentives before reading the analysis.
It also disposes of the awkward conversation in which a consultant has to explain why an unfavourable conclusion is being delivered despite costing the firm most of its expected revenue. That conversation should never need to happen.
A lender uses a feasibility study as independent evidence that projections are reasonable. If the study was prepared by a party paid on the loan closing, it is no longer independent evidence — it is advocacy from the borrower’s side of the table, and a careful credit officer may well treat it that way. In our experience that tends to mean discounting the conclusions, ordering additional analysis, or both, at the borrower’s cost in time and money. The credibility questions lenders actually apply are set out in our guide to feasibility study consultant credentials.
Investors rely on projections to size returns and to price risk. Analysis produced by a party earning a placement fee on the raise carries an obvious question, and it is one that surfaces during diligence rather than before it. Discovering the arrangement late is worse than disclosing it early.
The borrower is the party most exposed, and often the last to see it. A sponsor who is told that a marginal project is viable, and who then contributes equity, signs a personal guarantee and commits several years to executing it, bears the loss when the projections do not hold. The most valuable feasibility study a sponsor can buy is sometimes the one that says no, and that is the study a transaction-compensated adviser has the least reason to write.
The separation is not complicated. Each function answers a different question and is compensated in a different way.
| Role | Question it answers | How it should be compensated |
|---|---|---|
| Feasibility analyst | Can the project realistically work, and can it service the debt proposed? | Fixed professional fee, never contingent on the conclusion |
| Appraiser | What is the property worth? | Fixed fee, never contingent on value or on closing |
| Loan broker or packager | Which lender will lend, and on what terms? | Transaction-based compensation is normal here — under the applicable licence |
| Placement agent or registered representative | Which investors will fund it? | Transaction-based, under securities registration |
| Lender or investment committee | Should we take this credit or this position? | Its own commercial decision, informed by independent analysis |
Transaction-based pay is not disreputable. It is the normal and appropriate way to compensate placement, and brokers earn it legitimately. The argument here is narrower: the party paid that way should not also be the party certifying that the project works.
Ask these before an engagement letter is signed, and ask for the answers in writing.
None of the following proves misconduct, and none of them is an accusation against any firm. Each is a reason to ask a further question.
These are frequently conflated, and separating them resolves most of the argument. A firm can pass the first test and still fail the second, and in our view it is the second that decides whether the report is useful to the person reading it.
| Test | The question | What passing it proves |
|---|---|---|
| One — legal permission | Is the firm permitted to do this, given the lending, broker and securities rules that apply where it operates? | Only that the activity is lawful. It says nothing about the weight the analysis deserves. |
| Two — professional credibility | Will a lender, investor or agency still treat the analysis as independent once it knows how the firm is paid? | That the report can carry the weight placed on it. In our view this is the test that decides whether the analysis is commercially useful. |
A properly licensed firm that both analyses and finances a project may be operating entirely lawfully and still find its studies discounted by the very readers it needs to persuade. Legality is a floor, not a recommendation.
It would be inconsistent to publish this argument without stating how the firm making it operates. Wert-Berater, Inc. is an independent feasibility study and valuation practice founded in 1998, with more than 4,000 engagements representing approximately $41.2 billion in evaluated project value.
Every engagement is fixed-fee and quoted before work begins. Compensation never depends on a finding, on a conclusion of value, or on whether financing is obtained. The firm does not arrange, package or place financing, does not raise equity, does not accept referral fees from lenders, brokers or investors, and takes no position on whether a lender should approve a credit. Reports are signed, and the analyst responsible for an engagement is named in the report. Where a project does not support the debt proposed, the report says so, and the fee is the same as it would have been had the answer gone the other way.
Clients are free to take any report to any lender or investor. That is the whole point of paying for independent analysis.
Doing both creates a structural conflict, because the firm that judges whether a project works then earns more when the project proceeds. Whether it is lawful depends on licensing and securities rules in the relevant jurisdiction. Whether it is credible is a separate question, and lenders, investors and government reviewers may give less weight to analysis prepared by a party paid on the transaction closing.
Because the report exists to test assumptions that everyone else at the table has a reason to believe. Management wants approval, a seller wants the sale to close, a broker wants a commission. The study is useful to a credit committee precisely because the analyst has nothing at stake in the answer and can conclude that the project is not feasible without losing money by saying so.
Interagency appraisal and evaluation guidance issued by the federal banking agencies directs regulated lenders to keep appraisal ordering and review independent of loan production, and professional appraisal ethics prohibit accepting an assignment where compensation is contingent on a predetermined value or on the transaction closing. A closing-contingent appraisal fee runs against both.
In several states, yes. California’s Financing Law requires a licence to make or broker commercial loans, administered by the Department of Financial Protection and Innovation, and New York regulates disclosure by providers and brokers of certain commercial financing. Requirements vary by state, by transaction type and by exemption, so the question has to be answered where the activity occurs.
Often. Under federal securities law a person who effects transactions in securities for the account of others generally has to be registered or fall within an exemption, and receiving compensation tied to a capital raise is a recognised indicator of broker activity. Describing the work as consulting does not change its character. This is a question for securities counsel, not for a consultant.
It creates one, because the analyst then has a financial interest in the loan being made and possibly in which lender makes it. The reader of the report cannot tell whether a favourable conclusion reflects the project or the fee. Disclosure helps but does not remove the incentive, which is why the cleaner answer is not to accept the fee at all.
USDA’s guaranteed lending framework contemplates a feasibility study prepared by an independent qualified third party and addresses conflicts of interest in its programme regulations. In practice a consultant with a financial stake in the loan being approved is difficult to present as independent, so confirm the position for a specific transaction with the lender and the Rural Development state office.
Sometimes, under safeguards: genuine separation of personnel and reporting lines, no shared compensation tied to transaction outcomes, written disclosure to every reader of the report, and the ability of the analytical side to reach an unfavourable conclusion without commercial consequence. Structural separation on an organisational chart alone is not a safeguard.
Ask how the firm is compensated, whether any part of the fee depends on financing being approved or the transaction closing, whether the firm or any affiliate arranges, packages or places financing, whether it receives referral fees from lenders or investors, and whether the report can conclude that the project is not feasible. Ask for the answers in writing.
For the analysis itself, no. A fee that depends on the conclusion, on financing being approved or on a transaction closing pays the analyst for an outcome rather than for the work. Contingent compensation is normal in brokerage and placement, which is exactly why those functions belong to a separate, appropriately licensed party.
It helps a reader weigh the report, and disclosure is the minimum professional standard where any relationship exists. It does not change the incentive. A disclosed conflict is still a conflict, and a credit committee that reads one will usually discount the conclusions or ask for a second opinion from a party with no interest in the outcome.
Sources: Interagency Appraisal and Evaluation Guidelines as published by the FDIC and the OCC; Appraisal Institute Code of Professional Ethics; Securities Exchange Act general rules and regulations at 17 CFR Part 240 and SEC published guidance on broker-dealer registration; 7 CFR Part 5001 (USDA OneRD Guarantee Loan Initiative); California Financing Law materials published by the California Department of Financial Protection and Innovation; New York State Department of Financial Services commercial financing guidance. Published September 6, 2026.
President, Wert-Berater, Inc. — independent feasibility study consultants since 1998. 4,000+ engagements completed across all 50 states and internationally, evaluating $41.2 billion in project value for SBA, USDA, EB-5, conventional, and institutional financing decisions. Fiduciary duty runs to the lender and agency in every engagement.
Schedule a ConversationIndependent feasibility studies since 1998 — 4,000+ engagements, $41.2 billion in evaluated project value. Standard delivery 10–15 business days; RUSH delivery available at additional cost. Fixed fee, quoted before any work begins, never contingent on the finding.
Legal disclosure. Wert-Berater, Inc. offices are mailing addresses only. Following the COVID-19 pandemic the firm has elected to work remotely; its office locations receive mail and are not staffed for visitors or in-person meetings. Headquarters mailing address: 1968 South Coast Hwy, Ste 2382, Laguna Beach, CA 92651.
Wert-Berater, Inc. is an independent provider of feasibility studies and other related services. The firm does not provide financing or equity investment advice, and does not arrange, broker, or place debt or equity capital of any kind.
All appraisal assignments are performed by Bruce E. Jones, MAI, ASA-GC, BCA, CMEA, a member of the Appraisal Institute since 2006, a staff member of Wert-Berater, Inc. and owner of Special Purpose Realty Valuation.