Recent data indicates an uptick in defaults within the Small Business Administration's (SBA) 7(a) loan program. For instance, during the first two months of fiscal year 2024, the SBA approved $5.3 billion in 7(a) loans, marking a 26% increase compared to the same period in the previous fiscal year. However, this growth has been accompanied by rising concerns over loan performance, prompting heightened scrutiny of loan applications and tighter credit standards among lenders.
In response to these challenges, the SBA and affiliated lenders are placing greater emphasis on the feasibility studies required for loan applications. A comprehensive feasibility study is crucial for assessing a project's viability and is often mandated for SBA 7(a) loan approvals, especially for projects exceeding $1 million.
An SBA-compliant feasibility study typically includes:
SBA Feasibility Study Requirements
An SBA (Small Business Administration) feasibility study is a comprehensive analysis that assesses the viability of a proposed business venture, particularly when seeking financing through SBA loan programs such as the 7(a) or 504 loans. This study provides lenders with an objective evaluation of the project's potential for success. Key components typically include:
Executive Summary: An overview of the business concept, objectives, and key findings of the feasibility study.
Economic Feasibility: Analysis of the economic environment, including industry trends, economic indicators, and the potential impact on the business.
Market Feasibility: Detailed market analysis covering target demographics, market demand, competition, and potential market share. This section demonstrates the business's ability to capture and sustain a customer base.
Technical Feasibility: Evaluation of the technical requirements of the project, including necessary equipment, technology, and operational processes. It assesses whether the business has or can acquire the technical resources needed.
Management Feasibility: Assessment of the management team's qualifications, experience, and ability to execute the business plan effectively. This includes evaluating the adequacy and continuity of management.
Financial Feasibility: Comprehensive financial analysis, including:
Pro Forma Financial Statements: Projected income statements, balance sheets, and cash flow statements over a specified period (often 10 years).
Discounted Cash Flow Analysis (DCF): Evaluation of the present value of future cash flows to assess the project's profitability.
Financial Ratios and Sustainability Analysis: Examination of key financial ratios to determine the financial health and sustainability of the business.
Working Capital and Liquidity Analysis: Assessment of the business's ability to meet short-term obligations and maintain sufficient cash flow.
Financial Feasibility Table of Contents:
Pro forma (10 years)
Discounted Cash Flow Analysis (DCF)
Structure of the Assets and Liabilities
Net Assets (Net Worth)
Financial Sustainability Analysis
Key ratios of the company's financial sustainability
Working capital analysis
Liquidity Analysis Financial Performance
Overview of the Financial Results
Profitability Ratios
Analysis of the Business Activity (Turnover Ratios)
Labor productivity
Key Ratios Summary
Rating of the Financial Position and Financial Performance
Bankruptcy Test
Calculation of the Final Rating of the Financial Condition
The team at Wert-Berater Feasibility Studies, LLC have the experience and knowledge to provide an SBA Compliant Feasibility Study.
If shopping around get a sample of the financial analysis to confirm it is compliant or you risk rejection of the feasibility study by your lender.
Engaging a qualified consultant (be wise of cheap and fast) with industry experience is advisable to ensure the feasibility study meets SBA guidelines and effectively demonstrates the project's potential for success.
Given the increasing default rates, lenders are likely to scrutinize these studies more rigorously to mitigate risks and ensure the sustainability of funded projects. Prospective borrowers should be prepared for this enhanced evaluation process and ensure their feasibility studies are thorough and aligned with SBA requirements.
Given the increasing default rates, lenders are likely to scrutinize these studies more rigorously to mitigate risks and ensure the sustainability of funded projects. Prospective borrowers should be prepared for this enhanced evaluation process and ensure their feasibility studies are thorough and aligned with SBA requirements.
Contact Us to discuss your Feasibility Study by calling, emailing or Book a Meeting to Zoom and Interview us.
Travis Miller
267 885 9333
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