Why Feasibility Studies Get Rejected: The Deficiencies SBA and USDA Reviewers Flag, and the Outline That Survives Them

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  Printed feasibility study and financial projections under review on an underwriter's desk

The people who read a feasibility study for a guaranteed loan are not looking for reasons to approve it. They are working from audit findings that name the ways files fail, in a year when both agencies are purchasing more guarantees than they would like. Here is what the reviewers measure a study against, the twelve deficiencies that recur in the record, why the templates that rank on Google do not help, and a section-by-section outline built to the regulations rather than around them.

The approval rate for USDA Business and Industry guarantees fell from 89 percent to 53 percent in two years. That is not a rumor; it is arithmetic on a table the Office of the Comptroller of the Currency published in June 2025. Lenders submitted 414 B&I applications in fiscal 2021 and 369 were approved. In fiscal 2022 they submitted 590 and 367 were approved. In fiscal 2023 they submitted 596 and 314 were approved. Over the same three years the number of loans on which lenders sought to claim the guarantee doubled, from 19 to 38.

The posture behind those numbers became explicit in 2026. On February 18, the Administrator of the Rural Business-Cooperative Service wrote to the more than 775 lenders in the OneRD guarantee program that the agency held "over $2 billion in available funds for fiscal year 2026," and that it "also has over $1 billion in delinquent loans within the portfolio, and paid approximately $300 million between repurchases and losses over the last year." The letter asked for "particular attention to careful underwriting and servicing." On May 13 the agency removed a group of lenders holding roughly $620 million of delinquent loans, about 47 percent of Rural Development's delinquent book, after desk audits that found "significant instances of non-compliance with the regulatory requirements," and stated that it "has no room for noncompliance in underwriting and servicing practices."

The Small Business Administration reached the same place by a different route. Its Office of Inspector General runs a standing High Risk 7(a) Loan Review Program that pulls high-dollar, early-defaulted loans and asks whether the lender can prove it originated them properly. The findings repeat across years: lenders "did not provide adequate documentation to substantiate reasonable assurance that the borrowers met requirements for eligibility, repayment ability, and equity injection." Those three words, eligibility, repayment ability, equity injection, are the three things a feasibility study exists to support.

A study submitted into that environment is read by a reviewer who has a list. This piece sets out the list as the regulations and the audit record define it, and then gives the outline that answers it.

What the reviewers measure against

The standards are not secret. They are in SBA's Standard Operating Procedure 50 10 8, effective June 1, 2025, and in USDA's OneRD regulation at 7 CFR Part 5001.

For a 7(a) loan, the SOP requires that "the Lender's credit memorandum and analysis must address the Applicant's ability and likelihood to repay the loan from the cash flow of the business." For start-ups, new businesses and changes of ownership, the memo must "include detailed projections, including the supporting assumptions that reflect a debt service coverage equal to or greater than 1.15 within 2 years from loan funding or, for construction projects, within 2 years from the end of construction." The lender must supply "the assumptions supporting the projected cash flow coverage, including as applicable: justification for revenue growth, i.e., new product lines, sales channels, and new production facilities; justification for any reduction in expenses; and a comparison to current industry trends." And the SOP is unambiguous about what collateral cannot fix: "if the Lender's financial analysis demonstrates that the Applicant lacks reasonable assurance of repayment in a timely manner from the cash flow of the business, the loan request must be declined, regardless of the collateral available or outside sources of repayment."

For a 504 loan, the CDC's credit memorandum must include "a minimum of 2 years of projections," and "the analysis must support and justify the reasonableness and attainability of the assumptions." Where "the projections show repayment in Year 2 but not in Year 1, sufficient liquidity must be shown to cover the shortfall in Year 1." The SOP lists feasibility studies among the "independent studies or reports" that "may be beneficial in mitigating any weaknesses identified in the credit analysis," and names the circumstances in which SBA will ask for one: "market saturation by industry type and location; unique market concept; highly specialized Project property; project size disproportionate to size of community it will serve; or significant rapid growth of the Applicant and/or affiliate group with a corresponding increase in undisbursed and/or unseasoned debt."

For USDA, the study is defined at 7 CFR 5001.3 as a report "conducted by an independent qualified consultant(s) evaluating the economic, market, technical, financial, and management feasibility of the proposed project or operation in terms of its expectation for success as outlined in appendix A to subpart D." The appendix enumerates 37 factors under those five headings, from "contracts in place and contracts to be negotiated" under economic feasibility to "sensitivity analysis" under financial feasibility. The application rules at 5001.303 require projections "through a minimum of two years of the project performing at full operational capacity or stable operations," and "financial projections must be supported by a list of assumptions showing the basis for the projections." The regulation defines the standard a lender is held to when a loan goes bad: "negligent loan origination means the failure of a lender to perform those services or actions that a reasonably prudent lender would perform in originating its own portfolio of loans that are not guaranteed."

Against those texts, the failures sort into twelve kinds.

The twelve deficiencies

1. Revenue projections with no stated basis. This is the oldest finding in the record and still the most common. In 2011 the SBA Inspector General audited a lender's franchise loans and found it "did not adequately assess repayment ability when the lender accepted unrealistic projected annual revenue figures," ranging from $483,000 to $650,025, "as a basis for demonstrating the ability of the franchises to repay their debts." The SOP's cure is the assumptions list: revenue growth must be justified by something the reader can check, and compared "to current industry trends." A study whose revenue line is a growth rate applied to an opening number has not stated a basis.

2. Projections that ignore the borrower's own history. In a 2010 audit of 504 lenders, the Inspector General re-ran one applicant's numbers: "when estimated sales were adjusted to reflect historical performance in conjunction with similar adjustments to rent and depreciation, the cash flow projection showed that the applicant lacked repayment ability." For an existing business the SOP requires three years of historical statements plus an interim within 120 days, and a projection that departs from that history needs the departure explained.

3. Counting revenue the rules exclude. The same 2010 audit found a lender that "included unsupported applicant rental income on another loan, which resulted in inflating the applicant's cash flow." The SOP now says it directly: projected 7(a) coverage "may not include anticipated cash flow from rental income from the Project Property," and for 504 loans such income "must not be included in the repayment ability analysis." Studies for mixed-use buildings, RV parks with long-term sites and owner-occupied properties with tenants fail here regularly.

4. No comparison to the market the project will actually enter. The SOP asks for industry trends; USDA's market component asks for competition, target market, end-user analysis and industry risk; Section 538 requires a lender certification based on "comparable properties in the project's market area." A study that cites a national occupancy average and no local comparables has not done the market section, and a 538 file that skips the Agency's 15 percent vacancy check on its own portfolio in the market has missed the one test that can veto the guarantee outright.

5. Sensitivity analysis missing or decorative. It is the twelfth financial factor in Appendix A and the reviewer's first stop. The minimum is a downside case on the two or three variables that drive the project (rate, cost, volume, ramp) that still shows the coverage floor being reached, or an honest statement of the case in which it is not. The 504 rule on year-one shortfalls is the same idea in regulatory form.

6. Eligibility left to the lender. The Inspector General's recurring trio begins with eligibility, and eligibility is where the study can settle the question before the credit memo opens. Is the RV park deriving more than half its revenue from stays of 30 days or less? Is the assisted living facility licensed, or on a documented path to a license within 90 days of disbursement? Is the site in a rural area under Part 5001? Is the borrower an operating business rather than a landlord? A study that does not state its eligibility findings has left the reviewer to find them.

7. Equity injection asserted, not sourced. The third item in the trio. The OCC's list of common lender mistakes includes failing to execute "verification of borrower equity and business site inspections." A study should show the injection, its source, and whether any part is seller debt on standby, because the SOP counts standby seller debt toward equity only "if it is on full standby for the life of the SBA loan, and it does not exceed half of the SBA-required equity injection."

8. Dependency on one contract or one customer, unexamined. USDA's financial factors include "dependency on other entities" and its economic factors include "contracts in place and contracts to be negotiated, including terms and renewals." A projection that rests on a single off-take agreement, a single anchor tenant, or a single construction crew's housing demand has to show what happens in year ten when that contract ends, because the loan runs longer than the contract.

9. Construction cost and schedule treated as given. "Construction risk" is a technical factor in Appendix A, and the SOP measures coverage from "the end of construction" for construction projects. A study that carries the sponsor's budget without a contingency line, a schedule with no delay case, or a cost figure with no source has not addressed the risk that most often turns a new-business loan into an early default.

10. Management assessed by résumé alone. Both agencies want more. The 504 memo must address "owners or manager's experience"; USDA's management component asks for the "legal structure of the business or operation; ownership, board and management analysis," and, for projects run by a third-party operator, SBA requires that the borrower keep "meaningful oversight" or be treated as an ineligible passive business. The study should say who runs the property day to day, under what agreement, and who controls the bank accounts.

11. The author is not independent, or cannot be shown to be. USDA's definition requires "an independent third-party person." The FIELDS grant program requires the consultant to sign the recommendation and attach a résumé. A study prepared by the sponsor's accountant, the broker who earns a fee at closing, or an affiliate of the equity investor will be read as the sponsor's own projections with a cover on them, and the reviewer will discount it accordingly.

12. Answering a different question than the one asked. The technical report submitted in place of the feasibility study in a REAP file; the project-management "feasibility study" built from a downloadable template in place of a lender-grade study; the market study submitted where Community Facilities asked for a financial feasibility report with an examination opinion under AICPA attestation standards. Each is a competent document in the wrong envelope.

Why the templates on page one do not help

Search "feasibility study template" and the first page is project-management software: a downloadable Word file from a task-management vendor, a product-management blog's template with technical, financial, market, operational and legal sections, a template marketplace offering "48 feasibility study examples," and a work-management platform's guide that advises readers they "likely don't need a feasibility study if" they "already know the project is feasible." These are project-initiation documents. They exist to help a team decide whether to start something. They carry no consultant's opinion, no author qualifications, no sensitivity case keyed to a coverage ratio, no eligibility findings, and no mapping to the components a federal reviewer is required to find. A sponsor who fills one in and submits it has produced deficiency twelve.

The public-domain documents that come closest to the lender's list are older and less visible. USDA's own Rural Business-Cooperative Service publishes Service Report 58, "Vital Steps: A Cooperative Feasibility Study Guide," first written in 2000 and revised in 2010 and 2016, which includes a section on lender considerations, criteria for selecting and working with consultants, and an example outline of report components. Iowa State University Extension's feasibility study outline, from 2009, is the other one practitioners still cite. Both predate the OneRD regulation and neither is written to SBA's SOP, but both understand that a feasibility study is a document written for a lender by someone the lender did not hire to say yes.

The outline that survives

The outline below is built to the three texts a reviewer will hold it against: SOP 50 10 8, 7 CFR Part 5001 with its 37 factors, and the program-specific rules for Community Facilities, REAP, FIELDS and Section 538. Every section answers a deficiency above.

1. Cover, certification and qualifications. Title, project, borrower, lender, program and date. A statement that the author has no financial interest in the project or the loan. The author's résumé or statement of qualifications, including prior studies in the asset class. This is deficiency eleven, answered on page one.

2. Executive summary with a determination per component. One paragraph on the project, then a finding, feasible or not, for each of economic, market, technical, financial and management feasibility, exactly as Appendix A requires, and the coverage ratio in the base case and the downside case.

3. Project description. Site, program, unit or capacity count, total project cost with a sources-and-uses table, the loan request, the equity injection and its source, and the construction or acquisition timeline with the date operations begin.

4. Eligibility findings. Program by program: rural-area status under Part 5001 or the transient-revenue test under the SOP, special-purpose classification and its equity consequence, licensing status and timing, passive-business and management-agreement tests, owner-occupancy where it applies. State each finding and the evidence for it.

5. Economic feasibility. The five Appendix A factors: inputs required to operate, contracts in place and to be negotiated with terms and renewals, environmental risks, project cost against the revenue or benefit it produces, and the project's economic impact, including jobs, on its rural community.

6. Market feasibility. Trade area definition and demographics; demand estimate with its method; competitive set with each competitor's size, rates and occupancy from primary verification; the project's projected share and the ramp to stabilization; industry risk. For Section 538, the comparable-property analysis that supports the 1.15 certification and the check on Agency-guaranteed vacancy in the market.

7. Technical feasibility. Site suitability and infrastructure; construction budget with a stated contingency and its source; schedule with a delay case; technology and equipment with commercial availability and useful life; labor market; the technical report where REAP or an integrated processing system requires one.

8. Management feasibility. Ownership and legal structure; the operating team's history, experience and qualifications for this project; any management agreement, with the oversight the owner retains over budget, spending, bank accounts and staff.

9. Financial feasibility. The assumptions list first, on its own page, each with a basis the reader can check. Three years of historical statements for an existing business and the interim within 120 days. Projections through at least two years at full operational capacity, showing debt service coverage on the SBA basis (operating cash flow to debt service, 1.15 within two years of funding or of construction completion) and on the USDA basis (EBITDA less expected replacement capital expenditure to debt service). Global cash flow where the SOP requires it. The equity injection reconciled to the sources-and-uses table. Year-one liquidity where coverage is not reached until year two. Rental income from the project property shown separately and excluded from the repayment calculation.

10. Sensitivity and stress. Downside cases on revenue, cost, rate and ramp, singly and combined, each carried through to coverage. The case in which coverage falls below the floor, stated plainly, with the mitigant.

11. Risk register. The material risks from every section above, with the mitigant and the party responsible for each.

12. Consultant's opinion and recommendation. A signed conclusion, as FIELDS and Appendix D of Part 4280 require, stating whether the project is feasible on the terms proposed and, if the answer is conditional, the conditions.

Appendices. Data sources with dates for every figure; competitor verification notes; third-party reports relied on (appraisal, environmental, engineering); the technical report where applicable.

On data currency: the regulations set only two calendar limits, the SOP's 120-day interim financial statement and its 12-month appraisal window. Everything else is convention, and the convention in both agencies' field offices is that market and cost data older than about a year invite a request for an update. Dating every figure in the appendix is the cheapest defense against that request.

What the outline does that the templates cannot

A study built this way does three things a project-initiation template does not. It states its eligibility findings, so the reviewer's first question is answered rather than raised. It separates assumptions from projections, so the reviewer can test the basis instead of arguing with the result. And it carries a signed opinion from an author who can be identified, qualified and shown to be independent, which is the only kind of opinion a guarantee reviewer can rely on when the loan defaults and the Inspector General asks what the lender knew.

The two agencies are not rejecting studies to reduce volume. They are rejecting studies because their auditors have told them, in the same words for fifteen years, which three things the file failed to prove. A study that proves those three things, in the order the regulations ask, is not a formality. It is the document that decides whether the guarantee is issued, and whether it is honored.

Frequently asked questions

What are the most common reasons a feasibility study is sent back?

Revenue projections with no stated assumptions, projections that ignore the borrower's own history or the local market, revenue counted that the rules exclude (such as rental income from the project property under SBA rules), no sensitivity analysis, eligibility questions left unanswered, an unverified equity injection, and an author who cannot be shown to be independent.

What does SBA require projections to show?

For start-ups, new businesses and changes of ownership, SOP 50 10 8 requires detailed projections with supporting assumptions that reach a debt service coverage ratio of at least 1.15 within two years of funding, or within two years of the end of construction, including justification for revenue growth, justification for any expense reduction, and a comparison to current industry trends.

What does USDA require a feasibility study to contain?

Under 7 CFR 5001.3 and Appendix A to Subpart D, an evaluation of economic, market, technical, financial and management feasibility by an independent qualified consultant, covering 37 enumerated factors, with projections through at least two years at full operational capacity supported by a list of assumptions.

Can I use a downloadable feasibility study template for an SBA or USDA loan?

The templates that rank on Google are project-initiation documents from project-management vendors. They carry no consultant's opinion, no author qualifications, no coverage-based sensitivity analysis and no eligibility findings, and a study built on one will be read as the sponsor's own plan rather than an independent study.

How current does the data in a study need to be?

The SOP sets two calendar limits: interim financial statements dated within 120 days of submission and appraisals within 12 months of application. USDA sets none for study data. Field-office convention treats market and cost figures older than about a year as needing an update, so every figure should carry its date.

Who should write the study?

An independent third party with demonstrated experience in the asset class and no financial interest in the project or the loan. USDA's definition of a qualified consultant requires independence; SBA treats the study as an independent report; FIELDS requires the consultant to sign the recommendation and attach a résumé.

Sources:

1. Office of the Comptroller of the Currency, Community Developments Insights, "USDA Rural Development Business and Industry Guaranteed Loan Program," June 2025, Table 3 (program performance, fiscal 2021 through 2023) and "Common Mistakes by Lenders Making B&I Program Loans."

2. USDA Rural Business-Cooperative Service, Administrator's open letter to OneRD lenders, February 18, 2026.

3. USDA Rural Development, Stakeholder Announcement, "Revoked Lender List," May 13, 2026, and OneRD Guarantee program page, "Frequently Asked Questions for OneRD Revocation of Lenders."

4. U.S. Small Business Administration, Office of Inspector General, High Risk 7(a) Loan Review Program management advisories, including Report 17-18 (2017), Report 18-23 (September 13, 2018) and Report 20-18 (2020).

5. U.S. Small Business Administration, Office of Inspector General, Report 11-16, "Banco Popular Did Not Adequately Assess Borrower Repayment Ability When Originating Huntington Learning Center Franchise Loans," July 13, 2011.

6. U.S. Small Business Administration, Office of Inspector General, Report 10-10, "Audit of the Premier Certified Lenders in the Section 504 Loan Program," 2010.

7. U.S. Small Business Administration, Office of Inspector General, Advisory Memorandum 13-16R, "Purchase Reviews Allowed $4.6 Million in Improper Payments on 7(a) Recovery Act Loans," June 14, 2013.

8. U.S. Small Business Administration, SOP 50 10 8, Lender and Development Company Loan Programs, effective June 1, 2025: Section B, Chapter 1 (Credit Standards, 7(a) Lender's Credit Analysis); Section C, Chapter 1 (CDC Credit Memorandum, Independent Studies or Reports, Feasibility Studies); Section A, Chapter 1 (Types of Ineligible Businesses).

9. USDA Rural Development, 7 CFR 5001.3 (definitions of feasibility study, qualified consultant, negligent loan origination, debt service coverage ratio), 7 CFR 5001.303 (application requirements), 7 CFR 5001.304 and 5001.306, Electronic Code of Federal Regulations.

10. Federal Register, OneRD Guaranteed Loan Regulation, 85 FR 42518, July 14, 2020, Appendix A to Subpart D of Part 5001, Feasibility Study Components; 7 CFR Part 4280, Subpart B, Appendix D, Feasibility Study Components.

11. USDA Rural Development, Rural Business-Cooperative Service, FIELDS Feasibility Study Guidelines, June 30, 2026.

12. USDA Rural Housing Service, 7 CFR 3565.213 and 3565.303, Guaranteed Rural Rental Housing Program, Electronic Code of Federal Regulations.

13. USDA Rural Development, Rural Business-Cooperative Service, Service Report 58, "Vital Steps: A Cooperative Feasibility Study Guide," first published 2000, revised December 2010 and August 2016.

14. Iowa State University Extension, "Feasibility Study Outline," 2009.

15. Search engine results for "feasibility study template," "feasibility study example" and "feasibility study outline," captured September 3, 2026; pages described generically in text.