Worked Example: USDA B&I Hotel Acquisition Feasibility Study in Georgia

This is a worked example, not a client engagement. The sponsor in it wants to buy a working limited-service hotel at an interstate exit, sited in a rural-eligible area of Georgia, and to pay for it with a guaranteed loan from the Rural Development business program known as B&I. The example is built for a lender, a borrower or an analyst who needs to see what happens when a loan is sized to the seller's last year of results: the coverage test comes out exactly at the minimum, and nothing in the file leaves room for a bad month.

At a glance. An assumed 64-room, franchised, midscale-class hotel at a rural interchange is priced from the seller's normalized earnings at an assumed 8.50 percent capitalization rate. The USDA guarantee covers a loan sized to what the seller's year can carry, and the sponsor funds the rest. The loan passes its assumed 1.25x lender minimum by $113 a year, every sensitivity shock breaks it, and the sponsor's equity share is above the 35 percent cap these examples set.

• Total project cost: $3,606,448
• Purchase price (seller's normalized last-year income at the cap rate applied): $3,367,288
• USDA B&I guaranteed loan requested: $2,320,000
• Sponsor equity, share of total project cost: 35.7%
• Coverage on the seller's last fiscal year: 1.25x
• Stabilized debt service coverage (base case): 1.25x
• Occupancy for the 1.25x binding minimum: 45.0%

Sponsor equity here is 35.7 percent of total project cost, 0.7 percentage points over the 35 percent cap this series states as an assumption for every sponsor. The cap is not a USDA rule. It screens out deals a real sponsor would not bring to a lender, and this one sits just outside it. The brand's renovation plan, the improvement work a franchisor would normally ask for at a change of ownership, was dropped because it could not be financed within the cap. The case is a lesson in sizing an acquisition to the seller's year, not a comfortable pass.

What a Feasibility Consultant Tests First on a Georgia Hotel Acquisition

A lender looking at a hotel purchase asks one question before any other: what did this building earn last year, and could a new owner keep earning it? A construction project has no past, so its study rests on a projection. An acquisition has a seller's operating statement, and the lender holds it up beside whatever the buyer's pro forma says. When the two disagree, the lender believes the seller's books.

The consultant therefore starts with the seller's last fiscal year and tests the buyer's story against it. In this example the seller's year is an assumption, because no real seller exists: occupancy of 45.0 percent and an average daily rate (ADR) of $90.00, an assumed 2.0 percent of rooms revenue from other sources, and operating costs restated at the ratios of a listed hotel owner so that the numbers read like a professionally managed property rather than an owner's tax return. The restated net operating income, after a replacement reserve, is the figure that sets the price and, through the coverage test, the loan. Table 3 shows that derivation line by line.

Three tests follow. The first is price: does the purchase price equal what the earnings are worth at a cap rate drawn from a published range? The second is coverage: does the seller's year carry the debt service at the lender's minimum, and does a stabilized year do the same? The third is equity: what does the sponsor have to put in, and does the program rule on borrower investment leave it any slack? The B&I definition takes EBITDA, subtracts the replacement capital spending that can reasonably be expected, and divides by the year's principal and interest ^[1]. The reserve therefore belongs in the numerator, and the example deducts it.

The fourth question is the one this case exists to answer. If the loan is sized so that the seller's year just covers it, what does the cushion look like? It is $113 a year. The loan is the largest the seller's books allow, so the base case cannot come out higher than the minimum. A pass produced that way proves the arithmetic of the sizing and nothing about the safety of the loan.

Decision. The study would treat the seller's last fiscal year as the controlling test and the stabilized pro forma as the independent check, and it would report the thin cushion as the finding rather than burying it under the pass.

The Georgia Hotel Market a Lender Would Read Before Pricing the Deal

Georgia is a large and growing state for a limited-service hotel to sit in. Census Vintage 2025 estimates put its resident population at 11,302,748 for July 1, 2025, against an estimated 10,713,861 on April 1, 2020 ^[2]. The University of Georgia Cooperative Extension reported direct visitor spending in the state of $36.8 billion in 2024, up 3.8 percent, with 470,570 supported jobs ^[3]. Those are state-level strengths. They do not tell a lender what an older hotel at one rural exit earns, and the next paragraphs separate the state's averages from the part of it this hotel belongs to.

The University of Georgia Cooperative Extension also reported that the state's urban counties averaged 66 percent hotel occupancy across 2024 ^[4]. For the same year the University of Georgia Cooperative Extension reported that rural counties generally kept hotel occupancy averaging 35 to 45 percent in most months, a band whose top edge is where the seller's assumed year sits ^[5]. The distance between those two figures is the whole story of this case. The sponsor's hotel is rural, so the relevant row is the rural one, and the seller's assumed 45.0 percent sits at the top of that range, which already flatters an older property.

The University of Georgia Cooperative Extension's most recent monthly reading is statewide rather than rural. The University of Georgia Cooperative Extension put Georgia hotel occupancy at 61.6 percent in October 2025, a little below the year before, with ADR up 1.5 percent to $127.85 and RevPAR nearly flat at $78.76 ^[6]. Because that is a single month and a statewide mix, the example uses it only as a comparison line in Table 8 and never as an input. A rural interchange hotel that anchored its revenue to a statewide autumn month would overstate itself.

Decision. The study would anchor the base case to the rural range for the state, not the statewide October reading, and would treat the urban figures as context a rural interchange hotel cannot borrow.

Supply and Public Comps for a Rural Interchange Hotel

No sourced list of competing hotels at the interchange exists for this example, and none is invented. The project is deliberately unplaced, so a local inventory of rooms, brands and ages is a work item for the real study, not a number this page can print. What can be printed are public benchmarks that bracket the hotel's performance: the chain-scale results of a listed franchisor, a listed upscale owner's portfolio, and the state's own averages.

Choice Hotels International reported that its franchised midscale and upper midscale hotels ran a $99.21 ADR, 54.9 percent occupancy and $54.50 RevPAR in 2025, against $100.91, 55.9 percent and $56.41 in 2024 ^[7]. The sponsor's pro forma uses those national figures whole, which is why it is the optimistic column in every table. Choice Hotels International also reported that its franchised economy hotels ran a $70.73 ADR, 46.7 percent occupancy and $33.02 RevPAR in 2025 ^[8]. The assumed hotel sits between the two: its occupancy is a little under the economy scale's national figure, and its rate is well above it.

Apple Hospitality REIT reported Comparable Hotels occupancy of 74.1 percent, ADR of $159.09 and RevPAR of $117.95 for 2025 ^[9], and describes its strategy as an emphasis on upscale rooms-focused hotels ^[10]. It is a ceiling, not a comp, and the example borrows its published cost ratios because no limited-service operator found for this example publishes a closer set. Table 8 shows the consequence: the assumed hotel's RevPAR of $40.50 is below the sponsor's national chain-scale figure of $54.47 and far below the upscale owner's, and its revenue per room is a fraction of that portfolio's. The ratios come from a business with a multiple of the revenue per room, and a lender should know that.

HVS reported that the United States median development cost of a limited-service or midscale extended-stay hotel runs from $170,000 to $197,000 a room ^[11]. Against the middle of that range, the assumed purchase costs $56,351 a room all in, which is 30.7 percent of a new build's median cost (Table 4). That ratio explains why this slot became an acquisition: every new-construction concept tried at the median development cost needed far more equity than the cap allows, so a buyer who wanted a hotel in this part of the state and a sponsor with limited capital would look first at an existing building.

HVS gave a July 2026 reading of cap rates: stabilized or near-stabilized hotels trade near 8.0 to 8.5 percent, with a warning that aging properties staring at a heavy renovation bill will probably land higher ^[12]. The second half of that sentence describes the assumed property precisely. A hotel that is older and due for its brand's renovation does not deserve a rich multiple, so the example prices it at the cautious end of what HVS calls normal.

Decision. The comps would be read as a ladder, with the economy scale as the floor, the national midscale scale as the sponsor's hope and the upscale portfolio as a ceiling that tells the lender where the borrowed expense ratios came from.

Demand at a Rural Georgia Interchange

Demand for an interchange hotel is mostly passing travel. The Federal Highway Administration's Table VM-2 reports 122,216 million vehicle-miles traveled in Georgia in 2024, of which 37,305 million were on rural roads and 10,867 million on rural interstates ^[13]. A rural interstate carries a large volume of through traffic, and a limited-service hotel at an exit lives on the small share of it that stops for the night.

Leisure demand adds a second source. The University of Georgia Cooperative Extension reported 14.1 million visits to the state's parks, lodges and historic sites in 2024, 0.99 percent below the 2023 peak ^[14]. That is a state number and says nothing about one interchange, and the dip is small. The University of Georgia Cooperative Extension also reported that lodging GDP in rural counties grew 1.1 percent in 2024 after a 1.5 percent decline in 2023, while urban counties softened 0.7 percent ^[15]. The rural trend is therefore flat to slightly positive over two years, with no sourced momentum either way.

Decision. The study would underwrite flat demand at the seller's levels, require three years of the seller's monthly statements, and treat any growth the sponsor believes in as upside outside the loan.

The Site: What the Interchange Gives and What It Does Not

The site is a rural interchange parcel carrying an older franchised limited-service building with no restaurant. The example names no town, county or road, in keeping with the way a USDA example is built, and the 64 rooms are an assumption with no market anchor: every benchmark used here is per room or a ratio, so the room count scales the numbers without changing the shares.

Rural eligibility is a program condition, not a feature of the site. Under the OneRD guaranteed loan rule, an area counts as rural unless it lies in a municipality above 50,000 people or in the built-up land adjoining one ^[16]. The example says the project is in a rural-eligible area of Georgia and does not name the place. No eligibility-map result for a specific parcel was sourced, so a real file would carry the lender's written confirmation of eligibility before anything else is spent.

Decision. The site would be accepted on rural eligibility and visibility, not on demand: the study would prepare a lender's file around a property condition report, an eligibility confirmation and an environmental review before it relied on any figure in the pro forma.

USDA B&I Program Rules That Shape an Acquisition

Acquisition is a permitted use. B&I loan funds may pay for a business acquisition provided that jobs will be created or saved, and an acquisition means buying an entire business, not a partial stock acquisition ^[17]. A hotel purchase keeps the existing staff, so the job test is plausible, although no staffing count was sourced and the file would need one. The same section lets loan funds pay for buying and developing land, buildings and infrastructure for commercial properties ^[18], machinery and equipment and working capital ^[19], and the guarantee fee, lender fees and professional fees ^[20].

The equity rules turn on whether the Agency treats the borrower as a new business or an existing one. The Agency calls a borrower an existing business after a year or more of operation, once the Administrator judges it to have reached stable operations or full operating capacity ^[21]. For it the floor is ten percent, as balance sheet equity at closing or as cash from the borrower ^[22]. A new business that is not building anything faces a higher bar, twenty percent balance sheet equity or a 25 percent borrower investment measured on total eligible project cost ^[23]. A buyer in a newly formed entity could be classed as new even though the hotel is old, because the call is the Agency's. The model holds the stricter 25 percent investment as the limit, which leaves a 75 percent loan-to-cost ceiling, and 7 CFR 5001.105(d)(5)(i) lets the Agency demand more capital where it sees elevated risk ^[24].

The feasibility study follows the same classification. Once a loan to a new business passes $1,000,000 the Agency expects a feasibility study written by a consultant who is independent, qualified and acceptable to it, with scope set by the Agency ^[25]. The rule defines it as a report that evaluates economic, market, technical, financial and management feasibility ^[26]. A buyer classed as new needs the study; if the Agency calls the hotel an existing business, a lender would still want something close, because history alone is a thin foundation.

The guarantee itself has a price and a percentage. The FY 2026 OneRD notice sets, for loans under $5 million, an 85 percent guarantee, a 3.0 percent guarantee fee and a 0.55 percent periodic retention fee ^[27]. The up-front fee multiplies three things, the loan, the guaranteed share and the fee rate ^[28], and the rate cannot pass 5 percent ^[29]. The retention fee equals the rate times the December 31 outstanding principal times the percentage of guarantee ^[30]. A notice for FY 2027 could not be located, which leaves the FY 2026 schedule as the latest one read.

Pricing and term are negotiated within limits. The B&I rate is negotiated between lender and borrower; it can be fixed or floating, and it may not run higher than the lender's customary rate on non-guaranteed loans ^[31]. If the rate floats, the note has to spell out the base rate and the spread added to it, and the rule's own illustration is prime plus 1.0 percent ^[32]. Maturity cannot outrun the useful life that the project or its collateral justifies, with a hard stop at 40 years ^[33], and the guaranteed and unguaranteed slices run on one schedule that retires the debt with no balloon ^[34]. The bank prime loan rate stood at 7.00 percent from November 2 to November 6, 2026 ^[35]. The example assumes a spread of 1.75 percentage points over prime and a 25-year amortization, so the rate is 8.75 percent.

Collateral is where an acquisition differs from a construction loan. Under 7 CFR 5001.203, an appraisal's going-concern value comes out of the reconciled market value before any collateral discount is applied ^[36]. The price paid here buys a running business as well as a building, so the real estate behind the loan is worth less than that price. The lender's true collateral margin is thinner than a loan-to-price ratio of 68.9 percent suggests.

Finally, the coverage rule. A loan agreement carries a minimum coverage covenant only when the lender or the Agency asks for one ^[37]. The stored text sets a 1.1 times historical test only for existing businesses where refinancing debt is the majority purpose of the loan ^[38], which does not describe a purchase. The rule asks the lender to see that debt coverage is adequate and backed by cash flow analysis, yet gives no figure ^[39]. The B&I text as cited names no number, and that leaves an assumed 1.25x, the lender's own convention here, as the binding minimum on the history test and the stabilized test alike. One contrast helps. The SBA program page on this site puts a historical-earnings test of 1.25x on an SBA acquisition ^[40]; the B&I text has nothing like it, so the 1.25x used here is an assumed convention borrowed from that practice.

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

Decision. The study would treat the lender's assumed 1.25x as the binding minimum, hold the borrower investment at the stricter 25 percent for the program limit, and ask the Agency early how it classes a buyer of an operating hotel.

Cost Basis, Uses of Funds and the Guaranteed Loan

The price is a derived number, and Table 3 shows how. The seller's assumed last fiscal year carries rooms revenue of $946,080 and other revenue of $18,922, for total revenue of $965,002. Operating expenses at the listed owner's ratios, with a market management fee, come to $640,182, leaving EBITDA of $324,820. After the replacement reserve of $38,600, the normalized net operating income is $286,219. Divided by the assumed 8.50 percent capitalization rate, it gives a purchase price of $3,367,288, or $52,614 a room.

The assumed 8.50 percent is the upper end of the 8.0 to 8.5 percent band HVS gave for normal hotels ^[12]. A higher cap rate produces a lower price, so this price sits at the bottom of its sourced range. That is a deliberate choice made for the equity cap: the middle of the band, 8.25 percent, would price the hotel at $3,469,327 (Table 5) and lift the equity share. Paying less still depends on a seller who agrees to it, which is outside the model.

Table 4 adds the rest. The assumed third-party reports, closing and financing costs, including the franchise transfer application, come to $120,000, and the assumed working capital at closing is $60,000. Together with the price they make project cost before the guarantee fee $3,547,288. The guarantee fee is the loan times the guarantee percentage times the rate, $59,160, and total project cost is $3,606,448, or $56,351 a room.

The loan requested is $2,320,000, 68.9 percent of the purchase price. It is neither the largest loan the program would allow nor the loan the sponsor's pro forma would carry. A purchase of a going business is held here to what the seller's last fiscal year can carry at the lender minimum, rounded down to a $10,000 step, since the buyer holds the seller's books and so does the lender. The sponsor's market figures would carry $3,223,489 and the seller's year $2,320,920, so the seller's year governs and the request is rounded down from it (Table 5).

The guarantee covers 85 percent of the loan, $1,972,000, and the lender holds the unguaranteed $348,000. The sponsor's cash equity is $1,286,448, which is 35.7 percent of total project cost. A new business must put in 25 percent as borrower investment, and the equity exceeds that by $384,836. The 35 percent cap is an assumption of this series and not a program rule, so the deal clears the program with room and misses the cap by 0.7 percentage points. The cap is practical: sponsors rarely bring a lender a deal needing more than that share of cost in cash.

The renovation matters here, and it is the part of the story a sponsor would most want to change. A franchisor commonly asks a new owner for an improvement plan at transfer. The example priced three versions at the HVS and Nehmer Hotel Cost Estimating Guide's 2021 midscale tier averages, a guestroom softgoods package at $6,116.41 a key ^[44], a full-renovation addition of $5,613.03 a key ^[45], guest bathroom softgoods at $1,719.17 a key ^[46], corridors at $1,174.88 a key ^[47] and a lobby softgoods package of $38,400.69 for the guide's prototype hotel ^[48]. The HVS and Nehmer guide prices a midscale model hotel of 135 guestrooms on five stories ^[42], so the lobby figure is used whole for a smaller lobby. Those 2021 prices are escalated by an assumed 20 percent and carry an assumed 10 percent contingency. According to HVS, the Turner Building Cost Index climbed 3.9 percent during 2024 and 4.1 percent during 2025, and 4.8 percent over the trailing twelve months to 2026 ^[49]; the other two years are not sourced, which makes the assumed 20 percent escalation a judgement.

Table 5 is the reason the renovation plan is absent from the base case. The full plan at the middle of HVS's cap-rate range needs sponsor equity of 53.5 percent of cost, the same plan at the low-end price 52.6 percent, and a softgoods-only plan 47.5 percent. Only the purchase alone gets down to 35.7 percent. The renovation plan was dropped because it could not be financed within the cap. The loan does not grow with the plan, because the loan is sized on the seller's earnings, and the earnings do not include any lift from work not yet done. Every dollar of renovation is therefore a dollar of added equity.

Decision. The study would carry the purchase alone, would disclose that the franchisor's improvement plan is unfunded, and would not present the renovation as a use of the loan.

The Pro Forma: Revenue Build and Operating Statement

The pro forma shows two columns because the case compares two views of the same hotel. The sponsor's column uses the chain scale's national figures: 54.9 percent occupancy and a $99.21 ADR from Choice Hotels International ^[7]. The base case is the study's own view: it holds the assumed seller's levels of 45.0 percent and $90.00, and it assumes the same 2.0 percent of other revenue. Table 6 lays them side by side, and RevPAR tells the story in one line: $54.47 against $40.50.

Why do the columns differ? The sponsor describes a property with the brand's national performance and normal other revenue. The base case describes the building the seller is assumed to run, which is older, due for work it will not receive in this deal, and located where the University of Georgia Cooperative Extension saw 35 to 45 percent rural occupancy in most months of 2024 ^[5]. For other revenue, Apple Hospitality REIT's 2025 statement of operations shows room revenue of $1,278,423 thousand and other revenue of $68,287 thousand ^[50]; the sponsor's column uses that ratio, and the base case drops to an assumed 2.0 percent covering vending, pet fees and guest laundry, since an interchange hotel has no restaurant.

The expense side uses a single source of ratios in both columns. Apple Hospitality REIT's 2025 hotel operating expense was operating $361,994 thousand, hotel administrative $125,943 thousand, sales and marketing $127,031 thousand, utilities $51,434 thousand, repair and maintenance $71,313 thousand, franchise fees $62,550 thousand and management fees $47,057 thousand, with property taxes, insurance and other of $89,732 thousand ^[51]. Divided by that owner's total revenue, they give the ratios printed in Table 2. Apple pays management fees generally between 2.5 and 3.5 percent of gross revenues ^[53], and Choice Hotels International reported a United States system-wide average royalty rate of 5.14 percent for 2025 ^[52]. Both sit around the ratios used.

The result is an EBITDA margin of 33.7 percent in both columns, the same as the upscale owner's hotel margin before reserve (Table 8). That is the weak point of the example, and the case says so without softening it. The margin is borrowed rather than measured. An assumed 64-room rural hotel earns about $15,078 of revenue per room against the upscale owner's $47,743, and fixed costs such as a front-desk shift, insurance and a minimum maintenance program do not shrink in proportion. The true margin of the assumed hotel is probably lower, and every point of it reaches the price and the loan. A lender would resolve the doubt with the seller's own statements, not with the borrowed ratio.

Decision. Working figures come from the base case at the seller's levels; the sponsor's column is reported only as the sponsor's hope, and it would ask for the seller's expense lines in place of the listed owner's ratios before relying on either.

Debt Service Coverage Under the Convention, Sensitivity and Break-Even

The debt is a $2,320,000 loan at an assumed 8.75 percent (prime plus an assumed 1.75 points) over an assumed 25 years, which gives annual debt service of $228,885. Table 9 shows both tests. On the seller's last fiscal year, net operating income of $286,219 covers it 1.25x, which is exactly the assumed minimum. On the stabilized base case, which equals the seller's year, the answer is the same.

A program floor is the first thing a reader looks for, and this loan has none: the B&I text as cited leaves out any new-loan minimum, which leaves the lender's assumed 1.25x as the minimum that binds in both rows. The table prints that binding minimum as 1.25x, and cash flow above it as $113. The sponsor's column, at market figures, covers 1.74x and clears the minimum by $111,420, but it does not change the loan, because the loan is sized to the seller's books.

Two further lines in Table 9 deserve attention. The first is the year 1 guarantee retention fee. At the loan times the guarantee percentage times 0.55 percent, it is $10,846 a year, and added to debt service it drops the stabilized base case to 1.19x. Whether a lender counts the retention fee as debt service or as an expense is a term of the credit approval, and the example shows both. The second is the supported-loan equity. The convention here puts equity at the supported loan, which is the smaller of the loans the two years carry at the minimum, $2,320,920. On that loan the guarantee fee is $59,183, the total project cost is $3,606,471 and the sponsor's equity is $1,285,551, or 35.6 percent. The four figures travel together; equity is never set against a cost that belongs to a different loan.

Now the shocks. Table 10 applies five stresses to the stabilized base case, and each breaks the minimum.

Revenue ten percent lower takes coverage to 1.13x, revenue twenty percent lower to 1.00x, an interest rate two points higher to 1.07x, expenses ten percent higher to 0.97x and occupancy five points lower to 1.11x. The expense shock is the harshest: it removes $63,905 of annual cash flow against the minimum. The rate shock is applied to the requested loan, which stays at the amount sized on the base terms, and a variable-rate B&I note adjusts no more often than quarterly under the rule ^[32], so the borrower would feel it within a year.

Table 11 gives the break-even view. At the assumed ADR of $90.00, occupancy of 36.0 percent covers debt service at 1.00x, and 45.0 percent is what the binding minimum needs. At the base occupancy, an ADR of $71.97 breaks even, and $89.96 reaches the minimum, a hair under the assumed $90.00. The distance from the assumed 45.0 percent down to break-even is wide in occupancy terms, and that is real protection against default. The distance above the minimum is nothing at all. The example's cushion is therefore a protection against default, not against a covenant breach.

A general point sits inside the break-even table and applies to any acquisition sized this way. The share of the price that the seller's year will lend, 68.9 percent in Table 11, depends on three things: the cap rate that set the price, the coverage minimum, and the loan constant from the rate and amortization. It does not depend on the hotel. A higher cap rate cuts the price faster than the debt capacity, so the lender funds more of a smaller price. A lower rate or longer amortization lets the same income carry more debt. A sponsor wanting less equity has those levers and no others, because the hotel's earnings cancel out of the ratio.

Decision. The study would report the loan as passing by arithmetic and failing every stress, recommend the lender weigh a smaller loan or a stronger guarantor, and keep the break-even table at the front of the credit memo.

What Would Change the Answer

Four things would change the answer, in rising order of how much they matter to this sponsor.

The first is the seller's actual statements. The case rests on an assumed seller's year, and a real file would replace 45.0 percent and $90.00 with the hotel's own figures. A stronger year would raise both the price and the loan together, because both are derived from the same income. The equity share would barely move. It moves only through the fixed amounts, the assumed $120,000 of closing costs and the assumed $60,000 of working capital, which become a smaller share of a larger deal. The point is worth stating because it runs against intuition: a better hotel does not by itself fix a sponsor's equity problem when the sizing is historical.

The second is the capitalization rate. HVS places normal hotels at 8.0 to 8.5 percent and says older hotels facing a big renovation will likely trend above ^[12]. If the seller's price expectation were set at the middle of the range, the price would rise and the equity share would climb with it, as the first column of Table 5 shows for the renovation case. If a buyer negotiated a higher cap rate, the price would fall and the share of equity would fall with it. The assumed 8.50 percent is already the favorable end, so there is little to gain from this lever.

The third is the renovation. A franchisor can require an improvement plan at a change of ownership, and the file has none because the plan could not be financed within the cap. If the brand insisted, the sponsor would need either substantially more equity (47.5 to 53.5 percent of cost in the deals tried) or a negotiated deferral with the franchisor. The case does not assume any lift in occupancy or rate from a renovation. A study on a real hotel would read the brand's actual plan, price it with a contractor, and ask whether the franchise agreement permits deferral.

The fourth is the equity itself. The example is 35.7 percent against a 35 percent cap, and the cap is an assumption of this example. A different room count could clear it, but choosing one to clear the cap would be tuning, and the example does not. The more useful reading runs the other way: 35.7 percent equity on a hotel acquisition is ordinary, and the overage of 0.7 percentage points is a reason to state the cap plainly.

Decision. The deal would go forward only as a sized-to-history purchase with the equity share and the thin cushion stated plainly, and a real file would answer the seller's statements and the franchise plan before anything else.

Questions to Ask a Feasibility Study Company Before Hiring One

Why does the loan pass at exactly the minimum?

Because it is sized that way. The request is the largest loan the seller's last year carries at the assumed lender minimum, rounded down to a $10,000 step, so coverage on that year lands on the minimum by construction, by $113 a year. The stabilized base case equals the seller's year and lands on the same figure. The pass shows that the sizing worked; it says nothing about margin of safety.

Why is the sponsor's equity above the cap?

Sponsor equity is 35.7 percent of total project cost against an assumed 35 percent cap. The loan is held to about 68.9 percent of the purchase price by the seller's earnings, and closing costs, working capital and the guarantee fee sit on top of the price with no debt against them. The cap is a lane assumption, not a USDA rule, and the borrower-investment minimum for a new business is 25 percent ^[23].

What happened to the brand's renovation plan?

It was priced and dropped. The full plan raised the equity requirement to 53.5 percent of cost, and a softgoods-only plan to 47.5 percent, because the loan is sized on the seller's earnings and cannot grow with unfinished work. It could not be financed within the cap, so the base case buys the hotel as it runs today, and the franchisor's plan remains an open item.

Does USDA require a feasibility study for this loan?

If the Agency classes the buyer as a new business, a loan beyond the $1,000,000 threshold carries a consultant's feasibility study requirement ^[25]. Whether the Agency treats a buyer of an operating hotel as a new or an existing business is a classification the Agency makes ^[21], and a lender would ask before the file is built.

How should I choose a feasibility study company or consultant for a hotel purchase?

Ask for a sample that turns a seller's operating statement into a price and a loan, not only a market chapter, and check that the writer separates the sponsor's pro forma from the base case and says why they differ. Ask whether the expense ratios come from the seller's books or from a larger operator. Look for sensitivity and break-even tables with every assumption labelled, and confirm the consultant can satisfy the Agency's test of independence and qualification ^[25]. A company that returns only a pass or a fail has not shown its work.