Worked Example: USDA Business and Industry Hotel Feasibility Study in Connecticut

This is a worked example, not a client engagement. It follows an illustrative project, the acquisition and brand-standard renovation of an existing limited-service hotel sited in a rural-eligible area of Connecticut, through the questions a USDA Business and Industry (B&I) lender would put to a feasibility consultant before asking the Agency for a guarantee. Every market, regulatory and program figure is a public fact with its source, every project figure is a stated assumption, and every table is recomputed by script from those inputs. It is written for lenders, for buyers weighing a franchised acquisition in a rural market, and for anyone deciding what a feasibility study company must show when the first pass of the numbers does not clear the lender's coverage hurdle.

At a glance. An assumed 72-room limited-service hotel is bought and renovated for a total project cost of $8,897,320, financed with a $6,555,000 USDA B&I guaranteed loan (80 percent guaranteed under the FY 2026 notice) and $2,342,320 of borrower cash. At a stabilized occupancy of 69.1 percent and average daily rate of $132.23, the 2025 results IHG reports for its Holiday Inn Express hotels in the Americas ^[1], net operating income after the replacement reserve is $714,162 against $620,195 of annual debt service, a coverage of 1.15x, below the assumed 1.25x lender minimum: the base case does not pass. A restructure with a $6,030,000 loan and borrower equity of 32.1 percent of cost does, as the last section shows.

• Total project cost: $8,897,320
• USDA B&I guaranteed loan (80% guaranteed): $6,555,000
• Borrower equity: $2,342,320
• Stabilized net operating income after replacement reserve: $714,162
• Stabilized debt service coverage: 1.15x
• Break-even occupancy at 1.00x: 64.7%
• Occupancy needed for 1.25x: 71.9%

The Lender's Question: What a Feasibility Consultant Tests First

A B&I lender begins not with the market but with a classification, because the classification decides whether a feasibility study is required and which equity test the borrower must meet. The buyer is a newly formed operating company, and 7 CFR 5001.3 defines a new business as one in operation for less than one full year, or one that has operated for at least a year without reaching full operational capacity or stable operations as the Administrator determines ^[2]. A company formed to buy the hotel has no operating year behind it, so the conservative reading is that it is a new business even though the hotel it buys has traded for years.

That reading pulls in the study requirement. For guaranteed loans greater than $1,000,000 to a new business, 7 CFR 5001.306(a)(3)(i) requires a feasibility study from an independent consultant the Agency has found qualified and acceptable, its scope left to the Agency ^[3]. The loan in this example is $6,555,000 (the debt service and coverage table), so the requirement applies with room to spare. The rule also says what the document is: 7 CFR 5001.3 defines a feasibility study as a written report in which an independent, qualified consultant gives an opinion or finding on the proposed project's economic, market, technical, financial and management feasibility and its expectation for success ^[4]. A hotel market study that stops at occupancy and rate is not that document.

The second test is the coverage definition. For coverage, the B&I rule divides annual principal and interest into EBITDA less reasonably expected replacement capital expenditures ^[5]. The model therefore carries an assumed replacement reserve of 4.0 percent of total revenue and computes coverage on net operating income after it, the numerator the rule asks for.

The third test is the hurdle itself. The rule sets no minimum coverage for a new B&I loan, so no program floor competes with the lender's number. The 1.25x used throughout this example is a lender assumption of the kind many hotel lenders apply to stabilized coverage, not a regulatory number, and because it is the only minimum in play it binds. The result turns on it: against the assumed 1.25x the base case fails, against a 1.00x cash-flow test it passes.

Decision. The study would treat the borrower as a new business, build coverage on net operating income after the replacement reserve as 7 CFR 5001.3 defines it, and test the result against the lender's stated minimum rather than against the rule, which sets none, and it would say in its first pages that the base case falls short of the assumed 1.25x hurdle.

The Site and Its Market in Connecticut

The project is sited in a rural-eligible area of Connecticut. This example names no city or town, and none should be inferred: under the OneRD rule, rural land is land that lies neither in a city or town with more than 50,000 residents nor in the urbanized area next to one ^[6], and a feasibility consultant would confirm the parcel against the Agency's own eligibility tool and keep the result in the report. A limited-service property in such an area draws drive-in leisure guests, construction and project crews, visitors to local institutions and families attending events, rather than the corporate transient demand of a city hotel.

The use is squarely eligible. 7 CFR 5001.105(b)(8), under its tourist and recreation heading, names hotels and motels as eligible B&I projects when they operate as commercial enterprises, whether publicly or privately owned ^[7]. The same paragraph adds a condition that matters for an older roadside hotel: owner-occupied housing such as hotels and motels with a direct owner's living quarters is allowed only when the pro rata value of those quarters, based on square footage, is deducted from the use of loan proceeds ^[8]. The model assumes no owner's quarters; the study would verify that from the floor plans. Buying the property as a going business is also eligible: 7 CFR 5001.105(b)(2) makes business acquisitions eligible if jobs will be created or saved, and treats an acquisition as the purchase of an entire business rather than a partial stock acquisition ^[9]; the study would document the jobs the rebranding preserves.

Connecticut's population was 3,688,496 on July 1, 2025 by the Census Bureau's estimate, compared with 3,607,750 at the April 2020 estimates base, about 2.2 percent more ^[10]. The Northeast Region, the Census region that contains Connecticut, held 58,042,054 people on the same date ^[11]. A rural Connecticut hotel sits inside one of the most populous regions of the country, and its leisure demand is drive-to demand from that region. The state's outdoor assets are part of the draw: its network of 110 state parks, 32 state forests and 117 state boat launches welcomes more than 15 million visitors annually ^[12], and a property near that network has a reason to exist that does not depend on a single employer.

Decision. The study would locate the subject by its drive-time trade area and its position relative to the parks, water and routes that generate leisure trips, document rural eligibility from the Agency's tool, and treat the absence of a dominant corporate demand generator as the defining feature of the market.

Demand: Visitor Growth, Room Tax Receipts and What the Study Would Still Have to Build

The statewide signals are favorable. The Governor's office reported that Connecticut welcomed 72.2 million visitors in 2025, up 3.1 percent over the previous year against national growth of 1.5 percent ^[13]. The state's own tax receipts point the same way: the Department of Revenue Services collected $176.4 million of room occupancy tax in the fiscal year ended June 2026, 3.3 percent more than the $170.7 million of the year before ^[14]. Because that tax falls on stays in hotels, lodging houses and bed and breakfast establishments alike ^[15], the receipts move with room charges across all of them, rate and volume together, and give the direction of the market, not its level in any trade area.

No public, republishable Connecticut figure for hotel occupancy, average daily rate or revenue per available room was found for this example, and the example does not invent one. Public company filings give levels for whole brand groups instead. In 2025, Choice Hotels' U.S. franchised midscale and upper midscale hotels ran 54.9 percent occupancy at a $99.21 ADR ^[16], IHG's comparable Holiday Inn Express hotels in the Americas ran 69.1 percent at $132.23 ^[1], and Apple Hospitality REIT's comparable hotels, under a strategy that emphasizes upscale rooms-focused hotels, ran 74.1 percent at $159.09 ^{[17] [18]}. IHG counts Holiday Inn Express among its upper midscale brands and says its Americas region is mainly the US ^[19], the segment a franchised limited-service hotel renovated to a brand standard would join, so the example takes the IHG figures unadjusted as its stabilized occupancy and ADR, which the revenue table turns into a RevPAR of $91.37. Whether a rural Connecticut property would match a brand average is the question those filings cannot answer. The study would build the competitive set's occupancy and rate from primary data: a performance report for the set, the subject's trailing operating statements and the comparable properties' shopped rates across weekday, weekend and seasonal periods.

The demand mix in such a location is leisure-weighted, which concentrates revenue in fewer nights, so the study would show the monthly pattern rather than an annual average alone. One further point belongs here because it is so often confused with revenue. Connecticut taxes short-term stays in hotels and lodging houses at 15 percent, and stays in bed and breakfast establishments at 11 percent ^[15]. The guest pays that tax on top of the room rate, the hotel collects and remits it, and it is not revenue; the revenue table carries it as a memo line of $360,184, and the ADR of $132.23 is a rate before that tax.

Decision. The study would state the Connecticut tax receipts as direction, not level, and build the subject's occupancy and ADR from the competitive set's primary data, with the brand figures of 69.1 percent and $132.23 used here as the hypothesis to be tested rather than the conclusion.

Competition and New Supply

Supply works in two directions for a rural limited-service hotel. Nationally, new building has slowed: the Census Bureau puts private spending on lodging construction at $17,479 million for January to September 2026, 9.4 percent below the $19,291 million of the same months of 2025 ^[20]. That is the favorable direction, and it is the economic foundation of this example: a renovated existing hotel competing against a thinning flow of new product.

The Connecticut picture is missing. No public publisher whose terms let its figures be repeated here counts the hotels planned or under construction across Connecticut, so the state pipeline is left out of this example. The consultant would build the pipeline from the ground: which projects hold approvals within the subject's trade area, which are under construction, and above all whether any extended-stay product is coming to a market where crew and contractor demand is the weekday mainstay, because extended-stay hotels take exactly that guest at a lower operating cost per occupied room.

The cost of building sets the ceiling on how much new competition can appear. The 2026 HVS survey of United States hotel development costs puts the median for limited-service and midscale extended-stay hotels at $170,000 to $197,000 a room ^[21]. A developer must underwrite a rate that services that cost before a new limited-service hotel pencils, a hard case in a market whose rate levels are unpublished and whose demand is leisure-weighted. The same HVS survey tracks the Turner Building Cost Index, up 3.9 percent in 2024 and 4.1 percent in 2025, then 4.8 percent across the trailing twelve months to 2026 ^[22]. Rising construction costs deter new supply and, at the same time, inflate the renovation budget of the existing hotel.

The competitive set itself would be the study's own work product: the franchised and independent properties within the same drive-time trade area, segmented by chain scale, age, last renovation date and amenities comparable to the subject's post-renovation offer. The study would rank the renovated subject within that set, state where the brand-average ADR of $132.23 would sit against the set's shopped rates, and show whether the 69.1 percent occupancy implies a fair share of the set's demand or a premium, and if a premium, how large and for how long.

Decision. The study would treat slowing national construction as the structural support for an acquisition strategy and, with no public statewide pipeline count to lean on, build the local pipeline and competitive set from primary research, with particular attention to extended-stay product entering the trade area.

Cost Basis: Why This Example Is an Acquisition and Not a New Build

This example is an acquisition for a reason on the record. HVS's 2026 survey finds a new limited-service or midscale extended-stay hotel costing a median $170,000 to $197,000 a room ^[21], and at those costs a hotel in a rural Connecticut market would need a rate far above anything the market signals support. An acquisition changes the cost basis entirely. The example assumes a purchase price of $6,480,000 for land, building and existing furniture, fixtures and equipment, an assumed $90,000 per room, and an assumed renovation and brand improvement plan budget of $1,800,000, an assumed $25,000 per room for guest rooms, bathrooms, soft goods, exterior and signage. Both are assumptions because no public Connecticut hotel sale price per room or brand renovation cost was found for this case.

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

The rest of the capital stack follows from the program rules and a few further assumptions. A single assumed line of $260,000 covers third-party reports, closing and financing costs. An assumed $200,000 of working capital and renovation-period reserve is included because, as the ramp table shows, the first year needs it. An assumed loan of 75 percent of project cost, before the guarantee fee, leaves the borrower investing 25 percent of cost, the new-business minimum under one of the two tests in 7 CFR 5001.105(d)(4).

The guarantee fee is arithmetic the rule prescribes, not an assumption. The one-time USDA guarantee fee takes the total loan amount, applies the guarantee percentage to it, and then applies the fiscal year's fee rate from the Federal Register ^[27]. For B&I loans of $5 million to $25 million, the FY 2026 OneRD notice sets four figures: a guarantee fee of 3.0 percent, a periodic retention fee of 0.55 percent, a loan guarantee of 80 percent, and a further 0.50 percent when the note guarantee is issued ahead of construction completion ^[24]; none of the four is assumed. The loan of $6,555,000 therefore carries a guarantee fee of $157,320, which the cost table adds to the assumed project cost before the fee of $8,740,000 to reach a total project cost of $8,897,320, or $123,574 per room. The example uses FY 2026 rates because, as of November 10, 2026, no FY 2027 B&I notice had been published; fees apply by the fiscal year of obligation. The guaranteed portion is $5,244,000 and the lender holds an unguaranteed $1,311,000; a loan below $5 million would have carried an 85 percent guarantee under the same notice ^[28]. Under 7 CFR 5001.454(c), a further guarantee fee of 0.50 percent is charged where the guarantee is issued ahead of the project's construction completion ^[25]; the cost table carries that as a memo line of $26,220 outside the total, on the model's reading that it applies on the same base as the main fee, which a lender would confirm with the Agency since the rule text states only the percentage.

The equity test is where the acquisition structure earns its place. Under 7 CFR 5001.105(d)(4)(i), a new business may meet the B&I equity requirement with at least 20 percent balance sheet equity, including subordinated debt subject to a standstill agreement for the life of the loan, or a maximum debt-to-equity ratio of 4 to 1, at guaranteed loan closing ^[29]. Alternatively, under 7 CFR 5001.105(d)(4)(ii), it may show an investment by the borrower of equity or other funds, standstill subordinated debt and grants included, equal to 25 percent or more of the total eligible project cost ^[23]. The example meets the second test: the cost table shows borrower cash of $2,342,320, which is 26.3 percent of total project cost, $117,990 above the minimum. That margin is thin, because the guarantee fee lifts the denominator against which the 25 percent is measured and the equity absorbs it.

The last cost-side rule is the one hotel buyers most often underestimate. Under 7 CFR 5001.203, if an appraisal attributes any value to business valuation or going concern, that value is taken out of the reconciled market value, and only then is the collateral discounted ^[30]. A hotel's price reflects its flag, its reservation system and its trailing cash flow as well as its real estate, and the Agency's collateral analysis strips the first three out. The assumed price of $6,480,000 may be a fair going-concern price and still support a real estate value that leaves the $6,555,000 loan under-collateralized on the Agency's test. The study would review an appraisal that allocates value between real property, furniture, fixtures and equipment, and going concern, and present collateral coverage on the Agency's basis.

Decision. The study would size the project on the acquisition basis, show the guarantee fee as the rule computes it, present both new-business equity tests and the going-concern deduction, and state that the per-room cost of $123,574 sits well below the HVS new-build medians.

Revenue Build: From Renovation Year to Stabilization

The assumed 72 rooms yield 26,280 available room nights a year, and at the stabilized occupancy of 69.1 percent the hotel sells 18,159 of them. At the ADR of $132.23 that produces rooms revenue of $2,401,228 and a RevPAR of $91.37, as the revenue table sets out. Other revenue, an assumed 2.5 percent of rooms revenue for meeting room, pet and parking fees and vending, adds $60,031, for total revenue of $2,461,259 at stabilization.

The path to the stabilized third year is where the risk lives, because the renovation takes rooms out of service and the rebranding takes time to register with guests. The ramp table shows an assumed year-one occupancy of 61.5 percent at an assumed ADR of $120.33, 89 and 91 percent of the stabilized levels, for a RevPAR of $74.00 and total revenue of $1,993,417; an assumed year-two occupancy of 67.0 percent at an assumed ADR of $128.26, each 97 percent of stabilized, for a RevPAR of $85.93 and total revenue of $2,314,810; and the stabilized year-three figures above.

The ramp table also carries the cash flow story a lender reads first. On a fully amortizing schedule from the first month, year-one net operating income after the reserve of $430,833 covers amortizing debt service of $620,195 only 0.69x, a shortfall of $189,362 that would consume most of the assumed $200,000 working capital and renovation-period reserve. Year two reaches 1.01x, with $5,276 to spare, and year three covers its amortizing debt service 1.15x with $93,967 to spare. The rule allows a different structure: under 7 CFR 5001.402(b)(3), a B&I note may carry an interest-only period, with interest paid at least annually, so long as full principal-and-interest payments begin no later than 3 years after the promissory note is dated ^[31]. On interest-only debt service of $540,788, year one covers 0.80x, a shortfall of $109,954 that the assumed $200,000 reserve covers with a margin; year two covers 1.16x; year three covers 1.32x. Without the interest-only year the renovation would spend nearly the whole reserve before the rebranding has paid off.

Two things about the ramp would draw a careful reader. The year-one occupancy assumption of 61.5 percent is a construction figure, not a market figure: it reflects an assumed share of rooms out of service during refurbishment, and the study would tie it to the phasing plan. The ADR step-up from an assumed $120.33 to an assumed $128.26 to the brand figure of $132.23 is the rebranding premium, and the study would justify each step against the competitive set's shopped rates for renovated versus unrenovated product, read net of the 15 percent room tax the guest pays on top ^[15].

Decision. The study would present the three-year ramp with the interest-only year as the recommended structure, tie year-one occupancy to the renovation phasing plan, and justify each ADR step against renovated comparables, because the stabilized revenue of $2,461,259 is only as credible as the path that reaches it.

Debt Service Coverage and Sensitivity

The operating statement is built from a limited-service cost structure. Rooms department expense (housekeeping, front desk, laundry, guest supplies and breakfast) is an assumed 22.0 percent of rooms revenue, or $528,270 at stabilization. Franchise royalty and program fees are an assumed 10.0 percent of rooms revenue, or $240,123; that line is the price of the flag. The undistributed lines are fixed annual assumptions set out in the inputs table. Property taxes are an assumed $2,400 per room and insurance an assumed $1,300 per room, shown as $172,800 and $93,600; neither a Connecticut property tax rate nor an insurance quote was found for this case, so both are assumptions a study would replace with the assessor's bill and a broker's quotation. A management fee of an assumed 3.0 percent of total revenue and the assumed replacement reserve of 4.0 percent complete the statement.

Total operating expenses of $1,648,646 leave EBITDA of $812,613, and after the replacement reserve of $98,450 the net operating income after reserve, the coverage numerator the B&I rule prescribes ^[5], is $714,162, a margin of 29.0 percent.

The debt side begins with the rate. Under 7 CFR 5001.401, a B&I guaranteed loan carries a rate set by negotiation between the parties and may be fixed or variable, and cannot exceed the rate the lender customarily charges its borrowers for non-guaranteed loans in similar circumstances ^[32]. A variable rate must specify its base rate and any interest factors in the promissory note, the rule's own example being National Prime plus 1.0 percent, and the lender may adjust it no more often than quarterly ^[33]. The base rate is the bank prime loan rate, 7.00 percent in the Federal Reserve's November 9, 2026 H.15 release ^[26], to which the example adds an assumed spread of 1.25 percent, for an all-in rate of 8.25 percent as the debt service table shows. The amortization is an assumed 25 years, fully amortizing, inside the limit of 7 CFR 5001.402(a): final maturity is capped at the justified useful life of the project or collateral, and at 40 years or any lower State statutory limit ^[34].

On those terms the annual debt service is $620,195 and the stabilized coverage is 1.15x. The assumed lender minimum of 1.25x is the binding test, since the rule sets no coverage floor of its own, and cash flow is $61,081 short of it. The periodic retention fee makes it worse: under the FY 2026 notice, the fee is the principal balance still outstanding on December 31 times the retention fee rate and the percentage of guarantee ^[35], and at 0.55 percent on the 80 percent guaranteed share the year-one fee is $28,842. Added to debt service it takes coverage to 1.10x. The last two lines of the debt service table restate the shortfall as a loan size: at the assumed 1.25x minimum, $714,162 of stabilized income carries only $6,038,533 of debt, which is $516,467 less than the $6,555,000 the structure asks for.

The sensitivity table shows how little room the base case has. Revenue 10% below the assumed base, taken through ADR, cuts net operating income to $565,106 and coverage to 0.91x; revenue 20% below takes coverage to 0.67x. A rate 2 points above the assumed base lifts debt service to $728,693 and drops coverage to 0.98x. Operating expenses 10% above the assumed base reduce net operating income to $549,298 and coverage to 0.89x. Occupancy 5 points below the base, at the base ADR, gives 0.98x. In every shocked column the project falls below 1.00x: a base case at 1.15x has no sensitivity it can absorb and still pay its debt service from operations.

The break-even table expresses the same result as a target. Fixed operating costs that do not move with revenue total $776,400, and each dollar of rooms revenue contributes 0.62 after variable costs and the reserve. At the ADR of $132.23, the hotel breaks even at 1.00x coverage at 64.7 percent occupancy and reaches the assumed 1.25x minimum at 71.9 percent. At the occupancy of 69.1 percent, break-even ADR at 1.00x is $123.89 and the ADR for the assumed 1.25x minimum is $137.65. In RevPAR terms the hotel needs $85.61 to cover its debt service once and $95.12 to meet the assumed minimum, against the $91.37 the stabilized figures deliver. The gap between $91.37 and $95.12 is the whole case.

Decision. The study would report stabilized coverage of 1.15x against the assumed 1.25x minimum as a shortfall, show the retention fee inside the coverage test, and give the lender the two numbers it can act on: the loan the income supports at the minimum, $6,038,533, and the RevPAR the minimum requires, $95.12.

What the USDA B&I Rule Requires and How the Study Would Meet It

The program rules this example turns on are few, specific and on the public record in 7 CFR part 5001 and the FY 2026 fee notice. The table sets each against the example's position.

The feasibility study requirement defines the consultant's job. The scope is the Agency's to set ^[3], and the definition tells the consultant what the Agency will look for: an opinion on economic, market, technical, financial and management feasibility, in terms of the project's expectation for success ^[4]. In a hotel acquisition those five heads have concrete content. Economic feasibility is the trade area and its demand generators. Market feasibility is the competitive set, the penetration analysis and the rate positioning. Technical feasibility is the renovation scope, the brand's property improvement plan, the phasing and the cost estimate against an index that HVS, citing the Turner Building Cost Index, shows up 4.8 percent over the latest twelve months to 2026 ^[22]. Financial feasibility is the projection and the coverage above. Management feasibility is the newly formed borrower's principals and its management company, and for a new business this head carries the most weight, because the borrower has no operating history to speak for it.

The equity wording deserves care. The first test speaks of balance sheet equity and counts subordinated debt subject to a standstill agreement for the life of the loan ^[29]; the second speaks of a borrower investment of equity or other funds into the project, again counting standstill subordinated debt and grants ^[23]. A seller note with a standstill, common in hotel acquisitions, can therefore help under either test, and the study would say which test the structure relies on and show the closing balance sheet that proves it. This example relies on the investment test with all-cash equity and makes it with $117,990 to spare, the narrowest kind of pass; a modest renovation overrun funded by additional debt would breach it.

Decision. The study would organize its chapters around the five heads of the rule's feasibility study definition, present the equity position under both tests with a closing balance sheet, and treat the borrower as a new business throughout.

Risks: What Could Push 1.15x Lower

The sensitivity table has quantified the main risks; this section names their causes and what the study would do about each.

Rate. A B&I rate may be variable and may adjust as often as quarterly ^[33], and a rate 2 points above the assumed base takes coverage to 0.98x. A borrower starting at 1.15x cannot carry a floating rate without a cap or a swap, and the study would recommend a fixed or capped rate as a condition.

Renovation cost and timing. HVS's report on the Turner Building Cost Index shows construction costs up 4.1 percent in 2025, with the twelve months trailing into 2026 at 4.8 percent ^[22]. The assumed renovation budget of $1,800,000 carries no explicit contingency, and an overrun funded from the assumed $200,000 reserve would remove the cushion the interest-only year depends on. The study would require a brand-approved property improvement plan with a priced scope, a contingency and a fixed-price or guaranteed-maximum contract before closing.

New supply, especially extended-stay. The national fall of 9.4 percent in private lodging construction spending that the Census Bureau reports for January to September 2026 ^[20] says nothing about one rural trade area, and no public statewide pipeline count exists to fill the gap, so the study would survey permits and approvals within the drive-time market.

Leisure concentration and seasonality. The state's visitor growth of 3.1 percent in 2025 ^[13] and the more than 15 million annual visitors to its parks, forests and boat launches ^[12] describe demand that peaks on weekends and in the warmer months. The break-even table's 64.7 percent at 1.00x is an annual average that hides thin winter months, so the study would present a monthly projection and size the operating reserve to the slow season.

Revenue shortfall. Revenue 10% below the assumed base gives 0.91x, and occupancy 5 points below the base gives 0.98x. The stabilized figures are the brand average IHG reports for the Americas ^[1], not rural Connecticut figures, and nothing on the public record says whether 69.1 percent and $132.23 are below, at or above the competitive set. That uncertainty is the principal risk of the example.

Expense pressure. Operating expenses 10% above the assumed base give 0.89x. Labor, which drives the rooms department line, and property taxes, an assumed $2,400 per room pending the assessor's figure, are the two most exposed lines, and a reassessment after the sale is a hazard the study would raise with the local assessor.

Decision. The study would rank the risks by their effect on coverage, which puts revenue first, rate second and renovation cost third, and convert the top three into closing conditions: a competitive set study with primary data, a fixed or capped rate, and a priced and bonded renovation scope.

What Would Decide the Outcome

The base case falls short of the assumed 1.25x lender minimum, which binds because the rule sets none. Stabilized coverage is 1.15x, and 1.10x with the retention fee counted. That is the finding, and nothing in the market data on the record changes it. The model shows which levers close the gap; a feasibility consultant's job is to say which of them the evidence supports.

The first lever is the loan amount. The debt service table shows that $714,162 of stabilized net operating income carries a loan of $6,038,533 at the assumed 1.25x minimum, $516,467 below the $6,555,000 requested. Because $6,038,533 still falls between $5 million and $25 million, the FY 2026 notice tier would not change, and neither would the guarantee percentage or fee rate ^[24].

The restructure computed in the model pulls that lever on the same project. The B&I loan falls to $6,030,000, the supported loan rounded down to $10,000; the guarantee fee recomputed on it is $144,720, so total project cost becomes $8,884,720. The borrower funds the rest, $2,854,720 of equity or 32.1 percent of total project cost, $512,400 more than the base case and clear of the 25 percent investment test ^[23]. Debt service falls to $570,523 and coverage rises to 1.25x, so the restructure passes both tests, the B&I rule, which sets no new-loan minimum, and the assumed 1.25x lender minimum, with $1,009 to spare. That margin is rounding, not a cushion: with the recomputed year-one retention fee of $26,532 added to debt service, coverage is 1.20x, and a lender that counts the fee would want a smaller loan still.

The second lever is the structure. The ramp table shows that a year-one interest-only period, which 7 CFR 5001.402(b)(3) allows provided full principal and interest payments begin within 3 years of the note ^[31], cuts the year-one shortfall from $189,362 to $109,954, which leaves part of the assumed $200,000 reserve for the slow months. Interest-only does not fix the stabilized coverage, which is measured on the amortizing payment, but it keeps the project solvent through the renovation, a precondition for reaching stabilization at all. A longer amortization, within the useful-life and 40-year limits of 7 CFR 5001.402(a) ^[34], would lift coverage, and the study would run it.

The third lever is the one only the study can pull: the post-renovation RevPAR. The break-even table says the assumed 1.25x minimum requires a RevPAR of $95.12, against the $91.37 that the stabilized occupancy of 69.1 percent and ADR of $132.23 deliver. Expressed one way, the hotel needs 71.9 percent occupancy at that ADR; expressed another, it needs an ADR of $137.65 at that occupancy. Neither is implausible for a renovated, franchised limited-service hotel in a state whose room occupancy tax receipts rose 3.3 percent in the fiscal year ended June 2026 ^[14], and neither is proven by anything on the public record. If the competitive set supports a RevPAR of $95.12, the requested loan stands; if not, the restructure is the answer.

Decision. The study would present the requested $6,555,000 as a conditional pass at best, dependent on a competitive set RevPAR of $95.12 or better after renovation that only primary data could establish, and would put the restructured $6,030,000 loan with 32.1 percent borrower equity before the lender as the structure that meets the assumed minimum on the income the brand figures support.

FAQ: Questions to Ask a Feasibility Study Company About a USDA Hotel Loan

Does a USDA B&I hotel acquisition always need a feasibility study? Not always. The requirement in 7 CFR 5001.306(a)(3)(i) applies to guaranteed loans greater than $1,000,000 to a new business, and the Agency sets the scope ^[3]. A smaller loan, or a loan to a borrower the Agency accepts as an established business, may not require one. Here the loan is $6,555,000 and the borrower is newly formed, so the requirement applies.

Why an acquisition rather than a new build? Cost. A new limited-service or midscale extended-stay hotel runs a median $170,000 to $197,000 for each room in HVS's 2026 survey ^[21], and no rural Connecticut rate on the record would service that cost. The acquisition basis of an assumed $90,000 per room plus an assumed $25,000 per room of renovation, $123,574 per room in total with the guarantee fee, is what allows the arithmetic to be examined at all.

What coverage does USDA require? The rule defines the ratio, EBITDA less expected replacement capital expenditures over annual principal and interest ^[5], but sets no minimum for a new loan, so the lender's 1.25x assumption is the minimum that binds here. Ask the lender for its minimum before the study is scoped, because the same project passes a 1.00x test and fails the assumed 1.25x test.

How should I choose a feasibility study company or consultant for a B&I hotel loan? Start with the rule: the consultant must be independent, qualified and acceptable to the Agency, and the study must cover economic, market, technical, financial and management feasibility ^[4]. Then ask: will the company build the competitive set's occupancy and rate from primary data, since no public Connecticut-level figure exists, or lean on a brand average such as the 69.1 percent occupancy and $132.23 ADR that IHG reports for Holiday Inn Express in the Americas ^[1]? Will it compute coverage on net operating income after the replacement reserve, as the rule requires, and include the retention fee? Will it state plainly when the base case fails the lender's minimum, as this one does at 1.15x, and show the loan the income does support?

Can an interest-only period rescue a weak first year? Within limits. 7 CFR 5001.402(b)(3) allows an interest-only period provided full principal and interest payments start within 3 years of the note ^[31]. Here it cuts a year-one shortfall of $189,362 to $109,954, well inside the assumed $200,000 reserve. It does not change the stabilized coverage of 1.15x, which is measured on the amortizing payment, so it addresses survival through the renovation, not the lender's minimum.