The 504 program finances fixed assets through a bank first mortgage and a CDC debenture — and when the project is special-purpose or unproven, the feasibility study carries the credit decision.
The SBA 504 structure splits the capital stack three ways: a senior bank loan of roughly half the project, a CDC debenture of up to forty percent, and a borrower injection that rises for special-purpose property and start-up borrowers. Because the debenture is fixed-rate, long-term money secured behind the bank, the CDC and the SBA both need the same assurance the bank does — that projected cash flow services the combined debt with room to spare. SOP 50 10 is where that assurance is specified, and the independent feasibility study is how it is delivered when historical operations cannot speak for themselves.
The triggers are familiar to any 504 packager: start-ups with under two years of operating history, complete changes of ownership, ground-up construction, substantial expansion, and the long list of special-purpose properties — hotels, gas stations, car washes, marinas, RV parks, cold storage, assisted living — whose buildings have no meaningful alternative use if the operating business fails. For these assets the collateral is the business, which is exactly why the appraisal alone cannot close the file.
A 504-grade study demonstrates a minimum 1.15x operating debt service coverage ratio and 1.00x global coverage — not at a single stabilized point, but across a ten-year pro forma with the ramp to stabilization modeled honestly. Wert-Berater studies add sensitivity analysis at ±5, 10, and 15 percent on revenue, interest-rate stress from +0.5 to +3.0 percent against the bank tranche, and Monte Carlo simulation, so the credit committee sees how much adversity the project absorbs before coverage breaks.
Sequencing matters more than most borrowers realize. The study belongs early in the application — engaged early — by the borrower or through the lender or CDC, per the institution’s own rules, with lender confirmation before work begins — at the point the credit package is assembled — because its stabilized projections feed the appraiser’s income approach and its conditions precedent surface curable problems before they become underwriting exceptions. A standard Wert-Berater study delivers in 10 to 15 business days from complete project data.
President, Wert-Berater, Inc. — independent feasibility study consultants since 1998. More than 4,000 feasibility studies completed across all 50 states and internationally, evaluating $40.2 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.
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Schedule a ConversationIndependent feasibility studies since 1998 — 4,000+ engagements, $40.2 billion in evaluated project value. Standard delivery in 10 to 15 business days. Fiduciary duty to the lender and agency.