Why USDA Feasibility Studies Get Conditioned: The Five Graded Components, and Where Files Actually Fail
USDA rural development lending and feasibility requirements
USDA does not read a feasibility study. It grades one. The difference matters, because a document that reads well as a narrative can still come back conditioned if a reviewer working through Appendix A cannot find a conclusion for each of the five named components. This is what the regulation actually requires, where files fail in practice, the FY2026 numbers resolved against the Federal Register rather than against the program web pages, and what the Agency's May 2026 enforcement action tells a borrower about choosing a lender.
The Regulation, and What It Actually Says
Since 2020, USDA has administered its four principal guaranteed loan programs under a single consolidated rule. Business and Industry, Community Facilities, Rural Energy for America and Water and Waste Disposal all sit under 7 CFR Part 5001, the OneRD Guarantee Loan Initiative, with one application process and one loan note guarantee.
The feasibility study is defined in section 5001.3 as a report including an opinion or finding conducted by an independent qualified consultant, evaluating the economic, market, technical, financial and management feasibility of the proposed project in terms of its expectation for success, as outlined in Appendix A to Subpart D.
Two things follow from that sentence that most sponsors miss.
The five components are not headings a consultant chooses. They are the specification the Agency reviews against, published in Appendix A, and unchanged since the rule was promulgated in July 2020. The rule itself has been amended since, in December 2021 and again in September 2024 with a correction that December, but the component list in Appendix A has not been touched.
And the preparer is defined before the content is. An independent qualified consultant, acceptable to the Agency, with no financial interest in the outcome. A borrower's own business plan cannot substitute, and the legacy B&I rule states expressly that the income approach of an appraisal is not an acceptable feasibility study.
When a Study Is Actually Required
This is where most published guidance overstates the position, including, until recently, some of our own pages.
Under section 5001.303, the trigger is conditional rather than automatic. If the Agency is unable to determine a basis for successful repayment based on the documentation and analysis of the five feasibility study components provided in the lender's analysis, the borrower's business plan, or other project information, or if the proposed project will have significant impacts on existing operations, the Agency may require an independent feasibility study.
Read that carefully. The Agency looks first at whether the five components have already been addressed adequately somewhere in the file. An independent study is required when they have not been, or when the project disturbs an existing operation enough to warrant one.
Community Facilities carries the one bright line in the rule. Under section 5001.304, for guaranteed loans greater than $1,000,000 to a new entity or an entity conducting a new activity, a feasibility study prepared by an independent qualified consultant acceptable to the Agency is required. No discretion, no conditional language.
In practice, start-ups and major expansions under B&I attract the requirement almost every time, because a start-up has no operating history and therefore no documentation from which the Agency could determine a basis for repayment without one.
The Five Components, and What Each Must Contain
Appendix A also requires an executive summary reaching a conclusion for each component. A study missing a component is non-compliant on its face, which is the single most avoidable failure in this process.
Economic feasibility
Situates the project in its rural economy: labour availability, utility and infrastructure capacity, transportation access, proximity to raw materials, and the jobs created or saved.
This is the component treated as a formality more often than any other, and it is the one carrying the Agency's development mandate. It is also where a study can lose credibility on everything else. A storage facility or a small processing plant creates few jobs. Inflating that number to make the economic case look stronger tells a reviewer who knows the sector that the rest of the document may be similarly stretched. The better approach is to make the economic case honestly on other grounds: retained local spending, a service the trade area does not currently have, an unproductive parcel put to use, a supply chain shortened.
Market feasibility
Demand quantified, competitive supply documented, the durability of any offtake or supply commitments tested, and the projected market share expressed as something the trade area can actually support.
In rural markets this is harder than in metropolitan ones and the shortcuts are obvious to a reviewer. Comparable businesses are few, sub-county demographic data is thin, third-party market reports often do not cover the geography at all, and transactional evidence is limited. A credible rural study compensates with American Community Survey five-year estimates for small-geography demographics, state economic development reporting, USDA Economic Research Service publications, and primary research where the published record runs out. A study that quietly substitutes metropolitan data for a county of nine thousand people will be caught.
Technical feasibility
Site suitability, facility design, production technology, equipment performance, and the environmental analysis the programme requires.
This is the second most commonly under-treated component, because it looks like engineering rather than analysis. It is not. For a processing plant it is throughput and the equipment vendor's performance record. For a renewable energy system it is the technical report the rule requires, which can be embedded in the technical feasibility section where both are needed. For a facility serving vehicles it is access geometry and utility capacity. Treating this as a design detail rather than a graded section is a reliable way to have the file conditioned.
Financial feasibility
Defined in section 5001.3 as the ability of a project to achieve sufficient income, credit, and cash flow to financially sustain the project over the long term and meet all debt obligations.
Note what the regulation does not do here: it sets no numeric debt service coverage minimum. The coverage standard lives in the lender's own credit evaluation under section 5001.202, which requires analysis of character, capacity, capital, collateral and conditions.
This is the most common analytical error in the market, and it is worth stating plainly. The consultant's five components and the lender's five Cs are separate obligations under separate sections of the same rule. They are routinely conflated, including by people who should know better. A study that addresses financial feasibility as though it were the lender's credit memorandum has done the wrong job, and a lender that treats the feasibility study as a substitute for its own credit analysis has skipped a requirement.
One asset-class-specific rule does appear in the regulation. For Community Facilities residential facilities, including assisted living and skilled nursing, projections must be based on no more than 90 percent occupancy. It is the only occupancy ceiling in the rule, and a base case above it is non-compliant regardless of how well evidenced.
Management feasibility
The depth and experience of the ownership and operating team, assessed against this project at this scale.
A capable team in the abstract is not a capable team for the project in front of the reviewer. The useful form of this section names the specific operating experience, identifies the gaps, and states how each gap is covered, whether by a hire, a management agreement, or a contract operator.
The Numbers, Resolved Against the Federal Register
There is real confusion in circulation about the B&I guarantee percentage, and it is worth settling because the wrong figure will misprice a deal.
The tiered scale some sources still quote, 80 percent up to $5 million, 70 percent from $5 million to $10 million and 60 percent above that, with an Administrator's discretionary exception to 90 percent, comes from 7 CFR 4279.119. That is the older stand-alone B&I regulation, now used only for B&I CARES Act loans. It does not govern a regular B&I loan today.
The current figures come from the OneRD Annual Notice published at 91 FR 11272 on 9 March 2026, effective for fiscal 2026:
Programme | Guarantee | Initial fee | Annual retention fee |
B&I, loans under $5 million | 85 percent | 3.0 percent | 0.55 percent |
B&I, $5 million to $25 million | 80 percent | 3.0 percent | 0.55 percent |
B&I, reduced fee tier | 80 percent | 1.0 percent | 0.50 percent |
Community Facilities | 80 percent | 1.25 percent | 0.50 percent |
REAP | 80 percent | 1.0 percent | 0.25 percent |
Water and Waste Disposal | 90 percent | 1.0 percent | not applicable |
So the B&I maximum for fiscal 2026 is 85 percent, and only below $5 million. The only 90 percent B&I guarantee is a narrow category for a high-cost, isolated rural Alaska project not connected to a road system. All programmes also carry a 0.50 percent fee for issuance of the loan note guarantee before construction is complete. The rate in effect at obligation is fixed for the life of the guarantee.
Check this against the current year's notice every October. Programme web pages and secondary summaries lag, and a figure from the prior fiscal year will be wrong by the time a deal closes.
Equity, Which Is a Balance Sheet Test
Under section 5001.105(d):
Existing businesses: at least 10 percent tangible balance sheet equity at closing
New businesses: generally 20 percent balance sheet equity, or 25 percent of eligible project cost
New business construction, where the guarantee is requested before completion: 25 percent New businesses with adequate sales contracts: 10 percent
Energy projects: 25 to 40 percent tangible balance sheet equity, equivalent to a maximum debt to tangible net worth ratio between 3 to 1 and 1.5 to 1
The word tangible is doing work. This is a balance sheet test rather than a cash injection requirement, so existing assets, real estate equity and retained earnings count toward it, while appraisal surplus, bargain purchase gains and intangible assets do not. An existing business with a strong balance sheet can meet the test without writing a cheque, which surprises sponsors who have been through an SBA process.
The Agency may reduce the minimum for an existing business where personal or corporate guarantees are obtained and the pro formas meet or exceed the RMA Annual Statement Studies median quartile for current, quick, debt to worth and debt service coverage ratios. That is a documented path to a lower requirement, and it is underused.
What the May 2026 Lender Removals Actually Signal
On 12 May 2026, USDA removed ten lenders from the OneRD platform and permanently barred them from further participation. The Agency stated that those lenders held portfolios with approximately $620 million in delinquent loans, accounting for roughly 47 percent of Rural Development's delinquent loans.
The action did not arrive without warning. The Rural Business-Cooperative Service administrator had written to OneRD lenders in February 2026 invoking the lender removal authority at section 5001.132 and warning that negligent underwriting or servicing would draw corrective action, followed by desk audits from the Agency's special assets and external review functions.
Two things a borrower should take from this, and neither is what the headlines said.
This was a portfolio performance action, not a feasibility file action. No study was cited. The Agency acted on delinquency concentration, and ten lenders holding nearly half the delinquencies is a concentration finding rather than a document quality finding.
But it makes lender eligibility a live diligence item for the borrower. If a lender carries outsized delinquency relative to its OneRD volume, continued participation is not guaranteed, and a borrower mid-application with a removed lender has to transfer to another, which means new underwriting and lost time. Existing conditional commitments were honoured for a limited window, applications could transfer to a non-revoked lender that then redid the underwriting, and revoked lenders remained responsible for servicing their outstanding loans. Ask the question before you apply, not after.
The Approval Rate Figure, and Why to Be Careful With It
A statistic circulates widely that B&I approvals fell from 89 percent in fiscal 2021 to 53 percent in fiscal 2023. We have used it ourselves, and it is worth being precise about what it is.
It is a ratio computed from raw loan counts in a table published by the Office of the Comptroller of the Currency in June 2025, showing loans submitted and loans approved: 414 submitted and 369 approved in fiscal 2021, 590 and 367 in fiscal 2022, 596 and 314 in fiscal 2023. The percentages are arithmetic on those counts, not a published USDA or OCC rate. The intermediate fiscal 2022 figure is 62 percent. The denominator is loans submitted, on a count basis rather than a dollar basis, and no primary source extends the series past fiscal 2023.
The direction is real and the underlying counts are published. The precision implied by quoting it to a decimal is not. It should not be confused with the 98 percent figure sometimes cited for fiscal 2024, which is a dollar-based measure of how much of the annual allotment was used, an entirely different thing.
Where the Money Actually Goes
B&I obligations totalled $13.4 billion from fiscal 2015 through fiscal 2024, with 60 percent of that in the last five years, and average loan size rising from $2.75 million in 2015 to $8.1 million in 2024. Annual obligations ran between $1.6 billion and $1.9 billion across 2021 to 2024. Fiscal 2025 carried a record $3.5 billion programme level, though that is a ceiling rather than a realised total.
By sector over that decade, accommodation and food services was the largest at roughly $4 billion, followed by manufacturing at about $2.3 billion, utilities at $992 million, and mining, quarrying and oil and gas at $772 million, with health care following. B&I loans span 21 NAICS sectors and 90 subsectors.
USDA does not publish loan-level data by industry with performance attached, so there is no direct equivalent of the SBA loan tape for rural lending. What can be done is to look at how the same asset classes perform under the other federal guarantee programme, which gives an indication of where the underwriting risk sits by sector. Computed by Loan Analytics from the SBA 7(a) loan-level file, using the seasoned fiscal 2010 to 2019 origination cohort for charge-off and fiscal 2020 to the first half of 2026 for volume:
Asset class | Seasoned charge-off, by count | By dollar |
Cold storage | 2.33 percent | 0.04 percent |
RV parks and campgrounds | 2.20 percent | 0.66 percent |
Assisted living | 2.80 percent | 0.67 percent |
Hotels and motels | 2.71 percent | 1.37 percent |
Wineries | 3.91 percent | 0.86 percent |
Meat processing | 3.54 percent | 1.59 percent |
Skilled nursing | 5.06 percent | 1.60 percent |
Rural clinics and outpatient | 6.06 percent | 2.53 percent |
Breweries | 5.83 percent | 4.21 percent |
Dairy processing | 7.14 percent | 5.70 percent |
Sawmills | 8.02 percent | 7.64 percent |
Solar and renewable generation | 14.63 percent | 7.15 percent |
All industries | 7.30 percent | 3.34 percent |
Two readings for a rural lender.
The classes at the top of that table, cold storage, outdoor hospitality, senior care and lodging, perform well ahead of the all-industry average on both measures. These are asset-heavy businesses where a failure leaves something to recover.
The classes at the bottom are the ones a USDA file most often involves. Sawmills, dairy processing and small-scale renewable generation all charge off above the all-industry average by dollar, and solar is the worst in the set on both measures. These are exactly the projects where the technical feasibility component earns its place in the regulation: equipment that does not perform as specified, feedstock that does not arrive at the modelled price, and a facility that cannot be repurposed. A study that treats technical feasibility as a formality on a project of this kind has skipped the section that predicts the outcome.
What Gets a File Conditioned, in Order
From the pattern of what the regulation requires against what studies typically contain:
A missing component. The study addresses market and financial feasibility thoroughly and treats economic, technical and management as headings. This is the most common failure and the most avoidable, because the fix is structural rather than analytical.
No executive summary conclusion per component. Appendix A asks for one. A summary that concludes about the project overall, without a conclusion on each of the five, does not meet the specification.
Demand that cannot be traced. A projection whose source the reviewer cannot open. In rural geographies this usually means metropolitan data substituted for local data, or a national industry average applied to a county with nine thousand residents.
A preparer whose independence is not established. No statement of independence, a fee arrangement that could be read as contingent, or a consultant who also prepared the borrower's business plan or the lender's credit memorandum.
An appraisal income approach submitted as a feasibility study. Expressly rejected by rule, and still attempted.
Projections above the Community Facilities occupancy ceiling. For residential facilities, a base case above 90 percent occupancy is non-compliant.
Sensitivity analysis absent or decorative. The regulation does not set a coverage floor, but the lender's credit evaluation does, and a study that reports a base case without stressing it leaves the lender to do the work the study was commissioned for.
What to Do About It
Build the document to the five components, separately concluded. Structure the study with five distinctly concluded sections plus an executive summary that reaches a conclusion on each. Because the reviewer works against the Appendix A list, this single structural decision prevents the most common reason for a returned study.
Establish independence in writing. A statement of no financial interest, no contingent fee, and no dual role as both feasibility preparer and credit memorandum author. Name the preparer and their qualifications.
Align the stress case with the lender's covenant. Part 5001 sets no coverage minimum, so find out what the lender's credit policy applies and test to it, not to a number borrowed from another programme.
Verify the year's figures against the Federal Register notice. For fiscal 2026, 85 percent under $5 million and 80 percent to $25 million on B&I, with a 3.0 percent initial fee and 0.55 percent retention. Re-check each October.
Diligence the lender as well as the borrower. After May 2026, lender participation is not a given. Ask about OneRD standing before you commit to an application.
Frequently Asked Questions
Does USDA require a feasibility study on every loan?
No. Under section 5001.303 the Agency may require one where it cannot determine a basis for successful repayment from the five components as already addressed in the lender's analysis, the business plan or other project information, or where the project significantly affects existing operations. Community Facilities carries the one bright line: required for guaranteed loans above $1,000,000 to a new entity or an entity conducting a new activity. In practice B&I start-ups attract the requirement almost always.
What are the five components?
Economic, market, technical, financial and management feasibility, defined in section 5001.3 and specified in Appendix A to Subpart D, unchanged since the rule was promulgated in July 2020. Each is graded, and the executive summary must reach a conclusion on each.
What debt service coverage does USDA require?
The regulation sets no numeric minimum. Coverage lives in the lender's credit evaluation under section 5001.202. In practice lenders commonly underwrite near 1.25x at stabilisation, and the study should test to the specific lender's covenant rather than to a general figure.
What is the B&I guarantee percentage for fiscal 2026?
85 percent for loans under $5 million and 80 percent from $5 million to $25 million, per the OneRD Annual Notice at 91 FR 11272. The tiered 80, 70 and 60 percent scale still quoted in some places belongs to the superseded stand-alone B&I regulation and applies only to CARES Act loans.
How much equity does a USDA borrower need?
Ten percent tangible balance sheet equity for an existing business, generally 20 percent for a new business or 25 percent of eligible project cost, 25 percent for new business construction where the guarantee is requested before completion, 10 percent for a new business with adequate sales contracts, and 25 to 40 percent for energy projects. It is a balance sheet test, so existing assets and retained earnings count while appraisal surplus and intangibles do not.
Who can prepare the study?
An independent qualified consultant acceptable to the Agency, with no financial interest in the loan outcome, the borrower's business or the project's success. A borrower's business plan does not qualify, and the income approach of an appraisal is expressly not an acceptable feasibility study.
Does the May 2026 lender removal affect my application?
Only if your lender was one of the ten. The action was based on delinquency concentration rather than on any individual file. It does make lender standing worth asking about before you apply, since a transfer mid-application means new underwriting with a different lender.
Sources:
7 CFR Part 5001, OneRD Guarantee Loan Initiative, sections 5001.3, 5001.105, 5001.132, 5001.202, 5001.303, 5001.304 and Appendix A to Subpart D
Source citation 85 FR 42518, 14 July 2020, and subsequent amendments of December 2021 and September 2024 with the December 2024 correction
USDA Rural Development, OneRD Annual Notice, 91 FR 11272, 9 March 2026, guarantee percentages and fees effective 1 October 2025
7 CFR 4279.119 and 4279.150, superseded stand-alone Business and Industry provisions
USDA, press release on the removal of ten lenders from OneRD participation, 12 May 2026
Office of the Comptroller of the Currency, Community Developments Insights, June 2025, Business and Industry programme performance table
USDA Rural Development, Rural Data Gateway, Business and Industry obligation and sector data, fiscal 2015 to 2024
U.S. Small Business Administration, 7(a) loan-level FOIA data file, March 2026 release; asset-class charge-off analysis computed by Loan Analytics
Risk Management Association, Annual Statement Studies, referenced in 7 CFR 5001.105(d)
USDA Economic Research Service and U.S. Census Bureau American Community Survey, five-year estimates, for small-geography rural demand analysis
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