Worked Example: SBA 504 Owner-Occupied Retail Feasibility Study in Michigan

This is a worked example, not a client engagement. It takes an established independent hardware and home-improvement retailer that buys an existing 12,000 square foot multi-tenant retail building in the Macomb County submarket of Metro Detroit, moves its store into the vacant former anchor space and keeps two small suites leased, funded by a bank first lien, a second-lien debenture sold through a Certified Development Company (CDC) under the SBA 504 program, and the owner's cash. It shows what a feasibility study would test when the borrower is both the operating business and landlord of its own tenants. Public publishers supply the market and program figures, the project figures are labelled assumptions, and no retailer, tenant, brand, lender, CDC or address is named.

At a glance. An owner-occupied retail purchase in Macomb County, Michigan, with a total project cost of $1,756,600, financed with an $878,300 bank first lien, a $728,644 gross 504 debenture and $180,052 of borrower cash (Table 4). At the assumed store sales and suite rents the stabilized coverage is 1.60x, which clears both the program floor and the assumed 1.25x lender minimum, and the lender minimum binds (Table 8), but the cushion belongs to the store, not the building: revenue down 20 percent takes coverage to 0.53x (Table 9), and store sales at 92.9 percent of base are where the assumed 1.25x minimum sits (Table 10).

• Total project cost: $1,756,600
• Bank first-lien loan: $878,300
• 504 loan (debenture, including financed fees): $728,644
• Borrower cash at closing: $180,052
• Cash available for debt service at stabilization: $230,941
• Debt service coverage at stabilization: 1.60x
• Store sales needed for 1.25x coverage, share of base: 92.9%

What a Feasibility Consultant Tests First on an Owner-Occupied Retail 504 Loan

The lender's question on this building is not whether Macomb County needs another place to buy paint and fasteners. It is whether an operating hardware store can move from leased space into a building it owns, carry two layers of long-term debt on the whole 12,000 square feet, and still earn enough after payroll and cost of goods to cover both notes, with two small tenants whose rent comes nowhere near carrying the building.

The 504 structure shapes the test in three ways. First, the loan is a real estate loan to an operating business, not to a landlord. 13 CFR 120.110(c) keeps passive businesses out of SBA business loans: a developer's or landlord's company that only holds the financed property, never using or occupying it, is ineligible unless it is an Eligible Passive Company ^[1], and SBA's 504 program page lists speculation or investment in rental real estate among the uses a 504 loan cannot finance ^[2]. The building qualifies because the store occupies it: for an existing building the borrower must permanently occupy and use at least 51 percent of the rentable space, so no more than 49 percent of it can be leased out for good ^[3]. The example assumes the store takes 7,200 square feet, which Table 12 prints as 60.0 percent of the building, and leases 4,800 square feet, printed as 40.0 percent.

Second, coverage is a business-level test. If the owners hold the building in a separate passive company and lease it to the store, 13 CFR 120.111(a)(3) caps the rent at the amount necessary to make the loan payment plus the passive company's direct expenses of holding the property, such as maintenance, insurance and property taxes ^[4]. The cash that services the debt is therefore the store's earnings after its own costs, plus whatever the two suites net after the building's expenses, which is how Table 7 is built.

Third, the structure fixes the debt shares, so loan-to-cost is not the binding test. 13 CFR 120.900 describes permanent financing as typically 10 percent from the borrower, 50 percent from third-party loans and the rest from the 504 loan ^[5]. Because the business has operated more than two years in a building that is not limited or single purpose, the contribution floor under 13 CFR 120.910(a) is 10 percent ^[6], and the 504 net proceeds are assumed at the 40 percent ceiling of 13 CFR 120.930(a) ^[7].

With the shares fixed, the consultant's first test is coverage. Table 8 shows $230,941 of cash available for debt service against $144,714 of annual debt service, a coverage of 1.60x, and prints $180,893 as the cash needed at the assumed 1.25x lender minimum, a minimum that is bank and CDC policy rather than a rule in 13 CFR 120. The site's own SBA program page states a 504 program floor of 1.15x ^[8], and the 1.60x base meets both; the assumed 1.25x lender minimum is the one that binds, because it is the higher of the two. The $86,227 left after debt service (Table 8) sounds comfortable until Table 10 shows that it rests on store sales holding at 92.9 percent of base or better. SBA may condition a loan on a feasibility study, an appraisal or a survey, as 13 CFR 120.160(b) provides ^[9].

Decision. The study would size the structure on coverage, present the 1.60x base case as a store-sales result rather than a real estate result, and treat the sales assumption, the fixed cost base and the suites' re-leasing cost as the three things to be proved.

The Site and Its Market in Michigan: Macomb County and Metro Detroit

The example is placed on a suburban commercial corridor in Macomb County, the northeastern county of the Detroit-Warren-Dearborn metropolitan area, in an existing freestanding building whose former anchor space has gone dark. A real study would name the corridor, the parcel, the zoning district and the traffic count; here those are left blank on purpose.

What was sourced is the scale of the market and the submarket, set out below from Friedman Real Estate's H1 2026 submarket table for Metro Detroit as a whole ^[10] and for the Macomb submarket ^[11].

Two things in that table matter for this building. The example's assumed suite rent of $16.50 per square foot NNN sits between the Friedman Macomb average of $15.99 and the Friedman metro average of $17.53 ^{[11] [12]}, a premium over the submarket justified only by the suites' small size. And the Macomb average sale price of $108 per square foot in Friedman's table ^[11] is the anchor for the assumed purchase price of $100 per square foot, set below the average because 60 percent of the building is vacant at purchase and the buyer takes the lease-up risk.

Friedman Real Estate reports metro retail occupancy of 94.9 percent in H1 2026, the same as H2 2025, with net absorption of negative 34.6 thousand square feet in H1 2026 after positive 1.65 million square feet in H2 2025 ^[13]. Marcus & Millichap's public summary of its 3Q 2026 Detroit retail report says metro vacancy fell sharply over the final three months of 2025 to a cyclical low, has edged higher since, and is expected to rise modestly by year-end 2026 ^[14]. The two firms describe a market that has stopped tightening: a fair backdrop for buying a half-vacant building at a discount, and a poor one for assuming the anchor space could be re-let quickly to someone else.

Nothing in this section is a Michigan rule. The Michigan Treasury, the Michigan Legislature's statute site and Macomb County's equalization reports could not be read here, so no Michigan sales tax, property tax, uncapping-on-transfer or licensing rule is stated, and the property tax line in Table 3 is an assumption of $3.75 per building square foot with no millage behind it.

Decision. The study would present Macomb County as the submarket, carry the parcel, traffic, zoning and millage as open items until the Michigan publishers can be read, and use Friedman's submarket averages only as bounds on the assumed rent and price, not as evidence for them.

Demand: Households, Incomes and Michigan Retail Sales

Demand for a hardware store is households, their incomes and their spending on the category, all sourced here at the county, state or metro level because the trade area belongs to a real site.

The Census Bureau's Vintage 2025 series counts 886,221 people in Macomb County as of July 1, 2025, against 881,224 in its April 1, 2020 estimates base, a gain of about 0.6 percent after a dip to 875,065 in 2022 ^[15]. Michigan stood at 10,127,884, up about 0.5 percent from its 2020 base ^[16]. The Detroit-Warren-Dearborn metropolitan area was 4,390,913 against a 2020 base of 4,392,378, essentially flat ^[17]. This example projects no household growth into the sales line.

Incomes are the second input. The Census Bureau's 2025 American Community Survey brief puts Michigan's median household income at $75,832 in 2025, up a statistically significant 2.0 percent from $74,344 in 2024 in 2025 dollars ^[18], against a national median of $84,780, up 1.2 percent ^[19]. The same brief reports that among the 25 most populous metro areas the Detroit metro had the lowest median household income in 2025, $79,203 ^[20]. For a store whose basket is repair and maintenance, a stable owner base with modest incomes is not a bad customer, but it caps the ticket.

The third input is category spending. The Census Bureau describes its Monthly State Retail Sales as an experimental, modeled product blending survey, administrative and third-party data, published as year-over-year percentage changes for total retail sales excluding nonstore retailers and for retail subsectors ^[21]; it is a direction, not a measurement.

The pattern is the point. Michigan's total retail sales excluding nonstore retailers ran at low single-digit year-over-year changes from July 2025 to May 2026 before a 6.6 percent rise in June 2026 ^[22], while sales at building material and garden equipment and supplies dealers fell year over year in five of the six months from July to December 2025, by as much as 7.7 percent in October, then rose in every month of the first half of 2026, by 9.0 percent in June ^[23]. A category that swings that far inside nine months needs a wide sensitivity band, which is why Table 9 tests revenue down 10 and 20 percent.

None of this anchors the sales figure. The example assumes store sales of $260 per square foot of occupied space, which Table 5 turns into $1,872,000 on 7,200 square feet, and the assumption is unanchored: the hardware trade association's magazine could not be read, the Economic Census retail files came only as compressed archives not read here, and no other public benchmark for an independent hardware store's sales density was found. A lender would replace the figure with the borrower's own trailing sales from the leased store.

Decision. The study would carry Macomb County's population and Michigan's income and category series as context, treat the Census state series as direction only because the Bureau labels it experimental ^[21], and insist on the borrower's own sales history in place of the assumed $260 per square foot before any coverage figure is relied on.

Competition and Supply: Small Suites and Little Construction

Competition for this building runs on two levels, and a feasibility consultant would separate them. The store competes for customers against home centers, chains and other independents in a trade area this example cannot count without a site; the two suites compete for small tenants against every other strip center in the submarket, and that competition is sourced.

Supply first. Friedman Real Estate's H1 2026 table puts 1,295,211 square feet under construction across Metro Detroit, about 0.5 percent of inventory, and only 28,340 square feet in the Macomb submarket ^{[10] [11]}. Marcus & Millichap's public summary of its 3Q 2026 Detroit retail report says limited retail space is under construction, which may help landlords retain tenants and backfill vacant space in the near term ^[24]. For a buyer of an existing building this is the favorable half of the story: the competitor for the suite tenants is existing space, not a new center across the road.

Then the size of space. Friedman Real Estate, citing Keystone Commercial Real Estate's mid-2026 work, reports that the most aggressive absorption and competition in Metro Detroit are in spaces under 3,000 square feet, contested by medical retail, boutique fitness and quick-service food operators in neighborhood strip centers ^[25]. The example's two suites of 2,400 square feet each are in that band, which cuts both ways: they are the easiest size to re-let, and their tenants have the most alternatives. That is why the example assumes a suite vacancy and credit loss of 7.5 percent, above the Macomb submarket's 5.5 percent vacancy in Friedman's table ^[11]: a two-suite building is either fully leased or half empty.

Pricing of competing centers sets what the building would be worth if sold. Friedman Real Estate wrote in August 2026 that, on mid-2026 market data, grocery-anchored centers in strong suburban Metro Detroit submarkets trade at cap rates of 6.0 to 7.0 percent and stabilized neighborhood and strip centers at 6.5 to 8.5 percent ^[26]. A 12,000 square foot building with one owner-user and two small tenants is not a grocery-anchored center; Table 13 therefore uses an assumed capitalization rate of 8.0 percent, in the upper half of the Friedman range for strip centers.

The store-level competition cannot be sourced here. A real study would map the home centers and independents within the drive time and read the borrower's existing sales as the best evidence that the store already holds a share of the trade area; moving an existing store a short distance is a different risk from opening a new one, and the ramp in Table 6 is built on that difference.

Decision. The study would treat new supply as a low risk on the Friedman and Marcus & Millichap figures, suite tenancy as a liquid but contested market, and store-level competition as unmeasured until a site is in hand.

Cost Basis: Purchase, Renovation and the 504 Sources of Funds

Rounded to the dollar; lines may not foot by $1.

Table 3 marks each input as sourced or assumed: the 504 structure shares, fee caps, contingency cap, Treasury yields and job ratio come from a rule or a published rate; the store's sales and costs, the building's operating costs and the rent are all assumptions.

The purchase is the largest line. At an assumed $100 per square foot the 12,000 square foot building costs $1,200,000 (Table 4), a price set below the Macomb submarket's H1 2026 average of $108 per square foot in Friedman Real Estate's table ^[11] because the former anchor space is vacant and the buyer carries the cost of filling it. A vacant 60 percent is a real discount in a market where Friedman reports negative first-half absorption ^[13], but the buyer is also the tenant who fills it, so the appraiser would look at both the as-is and the stabilized value.

Renovation is assumed at $50 per square foot of the store's 7,200 square feet, $360,000 in Table 4, covering demising, HVAC, lighting, storefront and fixtures attached to the building, with a further assumed $96,000 for the parking lot, roof repairs and signage; no Michigan construction cost could be sourced. The contingency is the one construction line with a rule behind it: 13 CFR 120.882(b) allows a contingency reserve for cost overruns not to exceed 10 percent of construction cost ^[27], and Table 4 sets it at that cap, $45,600. Third-party reports, closing and financing costs are a single assumed line of $55,000, covering appraisal, environmental, survey, architect, title, legal and interim interest, the kind of professional fees that 13 CFR 120.882(c) makes eligible ^[27]. One cost is deliberately excluded: 13 CFR 120.871(a) provides that the costs of interior finishing of space to be leased out to another business are not eligible project costs ^[41], so suite build-out at turnover is the owner's cash, outside the project.

The sources of funds follow the rules. The bank first lien is 50 percent of total project cost, $878,300; 13 CFR 120.920(a) sets the floor on the third-party loans at the size of the 504 loan itself ^[28], and Table 12 prints the bank loan less the 504 loan at $149,656. The 504 net proceeds are $702,640, and the debenture is grossed up for the administrative costs that 13 CFR 120.883 lets the 504 loan and the debenture pay for, namely the CDC's processing fee, SBA's guarantee fee and the funding fee ^[42]. In Table 4 those are the processing fee at the 1.5 percent of net debenture proceeds that 13 CFR 120.971(a)(1) permits ^[30], $10,540; the CDC closing fee at the $10,000 maximum of 13 CFR 120.883(e) ^[31]; and the 0.5 percent guarantee fee and the funding fee of up to 0.25 percent of the debenture under 13 CFR 120.971(d) and (e) ^[32], $3,643 and $1,822. The gross debenture is $728,644, with $26,004 of financed administrative costs (Table 12); the underwriters' fee is not modeled because no sourced rate was found.

The borrower's cash at closing is $180,052 in Table 4: the 10 percent contribution of $175,660 plus $4,392, the one-time fee of 50 basis points on the third-party lender's participation that 13 CFR 120.972(a) requires SBA to collect when that lender holds the senior credit position ^[33], assumed here to be passed through to the borrower. Total debt is $1,606,944.

Decision. The study would carry the cost basis at the typical 504 split, ask for a contractor's bid in place of the assumed renovation and site figures, and list the suite build-out and the move's inventory as costs the 504 project cannot carry.

Revenue Build: Store Sales First, Suite Rent Second

Table 5 builds revenue in two parts that a lender should never add together without thinking. The store line is sales, not rent: an assumed $260 per square foot on 7,200 square feet gives $1,872,000 of store sales, gross of cost of goods. The suite line is rent, net of vacancy, plus the tenants' share of the building's operating costs. The total of $1,974,564 is therefore a mixed figure, and Table 7 is where the two become comparable. The store sales figure is unanchored: the Census state series gives direction only ^[21], and the assumed $260 per square foot would be replaced in a real study by the borrower's trailing twelve months.

The suite rent is bounded but still assumed. Base rent is assumed at $16.50 per square foot NNN, between Friedman Real Estate's Macomb submarket average asking rent of $15.99 and its metro average of $17.53 per square foot NNN in H1 2026 ^{[11] [12]}, on 4,800 square feet, for potential base rent of $79,200. Vacancy and credit loss at an assumed 7.5 percent takes $5,940 off, leaving $73,260 of effective base rent, and the tenants' expense recoveries of $29,304 are their share of the building's property taxes, insurance and common area costs, net of the same vacancy, as the leases are NNN. Friedman's figures are asking rents ^[12], and a study would read the two leases themselves: term remaining, options, escalations and whether the recoveries are capped.

The ramp in Table 6 is the move. Year 1 is set at 94 percent of stabilized store sales and year 2 at 98 percent, assumptions standing for customers who do not follow at once and for the disruption of the move; coverage runs 1.30x, 1.50x and 1.60x across the three years, with the building's net income held flat at $15,661. The ramp is gentler than a start-up's because the store already exists; a lender would still ask whether year 1 at 1.30x leaves room for the inventory build the 504 cannot fund ^[43].

Decision. The study would present store sales and suite rent as separate lines with separate evidence, replace the assumed $260 per square foot with the borrower's own history, and hold the year 1 ramp at or below the assumed 94 percent until the borrower can show customer retention through a past move or expansion.

Debt Service Coverage and Sensitivity

Table 7 is where the case is decided. Store sales of $1,872,000 less cost of goods sold of $1,123,200 at an assumed 40 percent gross margin leave $748,800 of gross profit. Card fees and other sales-variable costs at an assumed 2.5 percent of sales take $46,800; payroll, taxes and benefits for an assumed 11 full-time equivalents are $374,400, set at 20 percent of base sales; other store operating expenses are assumed at $112,320, 6 percent of base sales; and the last two are held fixed when sales move. Store earnings before building costs are $215,280.

The building then adds $73,260 of effective suite rent and $29,304 of recoveries and subtracts property taxes of $45,000, insurance of $7,200 and common area, snow removal and repairs of $27,000, all built from assumed rates of $3.75, $0.60 and $2.25 per square foot on the whole 12,000 square feet, plus management of the leased suites at $4,103 and a replacement reserve of $3,600 at an assumed $0.30 per square foot. Cash available for debt service is $230,941, of which the building's own contribution, printed in Table 10 as net income from the building after suites, costs and reserve, is $15,661. The store carries the debt.

Table 8 prices the two loans. The bank loan of $878,300 is priced at 7.39 percent: the Federal Reserve's H.15 release gives a 5-year Treasury constant maturity yield of 4.64 percent for November 6, 2026 ^[34], and an assumed spread of 2.75 percent is added, on an assumed 25-year amortization and a 10-year term, which meets the requirement of 13 CFR 120.921(a) that the third-party loan run at least 10 years when the 504 loan is for 20 years ^[35]. Annual bank debt service is $77,134.

The 504 loan of $728,644 is at an effective 6.96 percent for 20 years. SBA's program page offers 10-, 20- and 25-year maturities and ties the 504 rate to the current market rate for 10-year Treasury issues plus an increment ^[36]; the model reads the 10-year yield (4.86 percent, November 6, 2026) off that same H.15 release ^[34] and adds an assumed 0.50 point pricing spread, because no current debenture pricing could be sourced, and an assumed 1.60 points of ongoing fees. Those fees are the CDC's servicing fee of at least 0.625 percent per year under 13 CFR 120.971(a)(3) ^[37] and SBA's annual fee of not more than 0.9375 percent on the unpaid principal balance ^[32]. 504 annual debt service is $67,580, total debt service $144,714, and coverage 1.60x, with $180,893 of cash needed at the assumed 1.25x lender minimum and $86,227 of cash after debt service.

Table 9 shows why 1.60x is not as strong as it looks. Revenue down 10 percent, applied to store sales and suite rent alike, cuts cash available for debt service to $153,708 and coverage to 1.06x, below the assumed 1.25x minimum. Revenue down 20 percent gives $76,476 and 0.53x, a shortfall of $68,239. The reason is the cost structure: with payroll and other operating costs held fixed at $486,720 (Table 10) and a contribution margin of 37.5 percent, a tenth off the top line takes far more than a tenth off the cash. Rates up 2 points lift debt service to $169,724 and give 1.36x; because the 504 rate is fixed when the debenture sells and the bank rate is assumed fixed for five years, this column tests pricing before funding and the bank's reset after year 5. Expenses up 10 percent (all store and building costs; recoveries follow building costs) gives $171,701 and 1.19x, below the assumed 1.25x minimum on costs alone.

Table 10 converts the sensitivity into the number a lender would actually use. With debt service of $144,714, the building netting $15,661 and fixed store costs of $486,720 at a 37.5 percent contribution margin, store sales of $1,642,061, or $228.06 per square foot, cover the debt exactly at 1.00x, which is 87.7 percent of base; the assumed 1.25x minimum needs $1,738,538, or $241.46 per square foot, 92.9 percent of base. The strongest base coverage in this set rests on the one input that could not be sourced.

Decision. The study would report 1.60x as the base case and 92.9 percent of base sales as the real test, would hold payroll fixed in every downside case, and would ask the lender to size on the break-even rather than on the base.

What the SBA 504 Rule Requires and How the Study Would Meet It

The table above lists the rules and Table 12 prints the checks, each on 13 CFR 120 text or SBA's program page; this example does not quote SBA's standard operating procedure.

Occupancy. 13 CFR 120.131(b) provides that an existing building may be leased permanently up to 49 percent of its rentable area, so long as the owner-user keeps 51 percent or more for its own use ^[3]; for new construction the floor is 60 percent occupied and the leasing cap 20 percent ^[44]. Table 12 prints borrower occupancy at 60.0 percent and the leased share at 40.0 percent. The leased share is permitted only as an incident of the store's occupancy, since 13 CFR 120.110(c) bars passive landlords ^[1] and the program page bars investment in rental real estate ^[2].

Structure and limits. The 504 loan is funded from a CDC debenture and secured by a second lien on the project property ^[45], while the third-party loan comprises the balance on a first lien ^[46]. Table 12 prints the contribution at 10.0 percent of project cost, the minimum under 13 CFR 120.910(a) for a borrower that has operated more than two years in a building that is not limited or single purpose ^[6], and the 504 net proceeds at 40.0 percent, the ceiling of 13 CFR 120.930(a) ^[7]. The gross debenture of $728,644 is far inside the $5,000,000 limit in 13 CFR 120.931(a) ^[29]. The bank loan exceeds the 504 loan by $149,656 (Table 12), as 13 CFR 120.920(a) requires ^[28], and its 10-year term meets 13 CFR 120.921(a) against the 20-year 504 loan ^[35].

Economic development. 13 CFR 120.860 requires a 504 project to achieve at least one economic development objective, either job creation or retention under 120.861, at one Job Opportunity for each slice of 504 funding that SBA fixes by Federal Register notice, or a community development or public policy goal under 120.862 ^[47]. SBA's notice of September 30, 2025 sets that amount at one job opportunity per $95,000 guaranteed by SBA ^[39], for all 504 loans approved on or after October 1, 2025 ^[38]; Table 12 prints 7.7 job opportunities required on this debenture. Under 13 CFR 120.802 a Job Opportunity is a permanent job, full-time or its equivalent, that is created within two years after the 504 funds are received or kept in the community because of the 504 loan ^[40], so the store's assumed 11 full-time equivalents would meet the test if the CDC and SBA accept the retention case; whether a move from leased space a short distance away retains jobs is a judgment the study would have to argue with payroll records, not assume.

If the retention argument failed, the fallback is a goal under 13 CFR 120.862, available if the CDC's portfolio of 504 loans, this one counted, meets or exceeds its required Job Opportunity average ^[48]. Among the community development goals in 120.862(a) are bettering or steadying the local economy, encouraging further business activity, and drawing new income into the community ^[49], and 120.862(b)(1) lists revitalizing a business district of a community with a written revitalization or redevelopment plan ^[50]. Backfilling a dark anchor space is a plausible fit for the first.

Use of proceeds and the 7(a) comparison. The 504 loan cannot be used for working capital or inventory ^[43], nor is the interior finishing of the two leased suites an eligible project cost ^[41]. A 7(a) loan is also capped at $5,000,000 ^[51], while a variable 7(a) rate floats off either prime or the Optional Peg Rate ^[52]; the H.15 release shows prime at 7.00 percent on every business day of November 2 through 6, 2026 ^[53], and with a permitted spread of up to 3.0 percentage points over the base rate on loans above $350,000 ^[54], a 7(a) real estate loan would carry a higher and floating rate than the 504's fixed 6.96 percent. A 7(a) loan could, however, fund the move's inventory and working capital ^[43].

Michigan. No Michigan rule is stated: this example could not read the state's property tax, sales tax and statute publishers or the county's equalization pages.

Decision. The study would document the occupancy split against 13 CFR 120.131(b), argue the job-retention case with payroll records and keep the 120.862 goals in reserve, and state in writing that the Michigan tax and licensing rules are open items.

Risks a Lender Would Underwrite

Store sales through the move is the first risk and the largest, a business risk rather than a real estate risk. Table 9 shows revenue down 10 percent taking coverage to 1.06x and down 20 percent to 0.53x; the sales figure behind the 1.60x base is an assumption of $260 per square foot with no sourced benchmark.

Category volatility is the second: in the Census Bureau's experimental state series Michigan sales at building material and garden equipment and supplies dealers fell year over year in five of the six months from July to December 2025 and then rose in every month of the first half of 2026 ^[23]. The channel is the third: the Census Bureau estimates that e-commerce accounted for 17.1 percent of total United States retail sales in the second quarter of 2026, growing 12.2 percent year over year against 6.7 percent for all retail ^[55].

The market is the fourth. Friedman Real Estate reports negative net absorption of 34.6 thousand square feet across Metro Detroit retail in H1 2026 ^[13], and Marcus & Millichap's public summary of its 3Q 2026 report expects metro vacancy to rise modestly by year-end 2026 from its late-2025 low ^[14]; both bear on what the suites would re-let for. Demographics are the fifth: the Detroit metro's population was essentially flat between the 2020 base and July 2025 ^[17], and its median household income of $79,203 in 2025 was the lowest among the 25 most populous metro areas ^[20], so the store will not grow into its debt on population alone.

The suites are the sixth. Their net contribution after the building's costs is $15,661 (Table 10), so a vacancy in one suite turns the building into a cost the store carries. Spaces under 3,000 square feet are, in Friedman Real Estate's account of Keystone Commercial Real Estate's mid-2026 work, the most contested in Metro Detroit ^[25], which helps re-leasing; but interior finish for a new tenant is not an eligible 504 project cost ^[41], so turnover is paid from the store's cash.

Collateral is the seventh, and Table 13 measures it. Valued as if the store were a tenant at market, the store's 7,200 square feet at an assumed $14.00 per square foot NNN, below Friedman Real Estate's Macomb average of $15.99 because the space is larger ^[11], and the suites at the assumed $16.50, give potential rent of $180,000 for the whole building and, after vacancy, recoveries, operating costs, management and reserve, net operating income at market of $147,370. At an assumed 8.0 percent capitalization rate, in the upper half of Friedman Real Estate's 6.5 to 8.5 percent range for stabilized neighborhood and strip centers ^[26], the indicated value is $1,842,120, 104.9 percent of total project cost; the bank loan is 47.7 percent of that value and total debt 87.2 percent. Value barely clears cost, and any move toward the top of the Friedman range would erode the thin cover over the 504's second lien ^[26].

Working capital is the eighth: the 504 loan cannot fund inventory or working capital ^[43], so a store stocking a larger floor needs a separate source committed before closing. Rates are the least of the eight, since the 504 rate is fixed when the debenture sells.

Decision. The study would rank the risks as sales, costs, suites and collateral, in that order, and would make the inventory financing a condition rather than an assumption.

What Would Decide the Outcome

Three things would decide this loan, and none of them is the rent roll.

The first is store sales through the move. Table 10 puts the assumed 1.25x minimum at store sales of $1,738,538, or 92.9 percent of the assumed base, and 1.00x at $1,642,061, or 87.7 percent. A lender would want the borrower's trailing sales from the existing leased store, by month, for three years. If they already exceed the assumed $1,872,000 on a smaller floor, the case is easy; if the base depends on growth the move is supposed to create, the lender would size on the trailing figure.

The second is cost discipline. Table 9 shows that expenses up 10 percent, on their own, take coverage to 1.19x, below the assumed 1.25x minimum. Payroll of an assumed $374,400 for 11 full-time equivalents is the largest controllable line. The property tax line is an assumption of $3.75 per square foot with no Michigan millage behind it, and a real figure after the transfer could move the building's net contribution of $15,661 (Table 10) to zero or below.

The third is the suites. Two tenants on 4,800 assumed square feet produce the $15,661 in Table 10 that keeps the building from costing the store money, and either lease ending without a replacement, or with a replacement who wants finish the 504 cannot fund ^[41], lands on the store's cash. A study would read both leases, test the rent against Friedman Real Estate's Macomb average of $15.99 per square foot NNN ^[11], and ask whether the tenants' uses are among those Friedman and Keystone describe as contesting spaces under 3,000 square feet ^[25].

Decision. On trailing store sales, the study would size the loan at the assumed 1.25x binding minimum, not at the 1.60x base, that the inventory financing be committed before closing, and that both leases be read and the property tax line replaced first.

Questions to Ask a Feasibility Study Company About an SBA 504 Retail Purchase

Can a 504 loan buy a building that has tenants in it? Yes, within limits. An existing building may be leased permanently up to 49 percent of its rentable area, so long as the owner-user keeps 51 percent or more for its own use ^[3]; for new construction the floor is 60 percent occupied and the cap on permanent leasing is 20 percent ^[44]. The occupancy keeps the loan on the right side of 13 CFR 120.110(c), which bars passive landlords that do not use or occupy the financed assets ^[1].

If coverage is 1.60x, why is the case so cautious? Because the 1.60x is almost entirely the store's earnings, and Table 10 shows that the assumed 1.25x minimum is reached at 92.9 percent of base store sales. The building's own net contribution is $15,661 (Table 10).

Why is there no Michigan property tax or sales tax figure? Because the Michigan Treasury, the Michigan Legislature's statute site and Macomb County's equalization pages were not readable from their publishers here, and no Michigan rule appears that the publisher's own page did not supply. The property tax line is therefore an assumption of $3.75 per building square foot, flagged in Table 3.

How should a borrower choose a feasibility study company or consultant for an owner-occupied retail 504? Ask three things. Whether the consultant separates the store's earnings from the building's net operating income, as Table 7 does, instead of underwriting the building on a market rent the store would pay itself, which 13 CFR 120.111(a)(3) caps where an Eligible Passive Company holds the property ^[4]. Whether every market figure is cited to its publisher and every unsourced project figure is marked as an assumption, as Table 3 does. And whether the study runs a break-even in store sales per square foot, as Table 10 does, rather than stopping at a base-case coverage ratio.

What would a lender want added before relying on this? The borrower's trailing sales by month, the two suite leases, an as-is and stabilized appraisal, a contractor's bid in place of the assumed $50 per square foot and $96,000 of site work, the Michigan millage and transfer treatment, and a committed source for the move's inventory. Friedman Real Estate's H1 2026 submarket figures ^[11] and Marcus & Millichap's public 3Q 2026 summary ^[14] would be refreshed to the quarter of underwriting.