SBA 7(a) Land Subdivision Feasibility Study

Why SBA land subdivision lending is so rare

SBA's 7(a) files hold only 32 land subdivision loans approved in FY2017 through FY2026, worth $9.5 million, which is a small count for ten fiscal years. A lot developer should read that count as thin evidence, and should ask a lender early whether land and site work can be financed at all. What the SBA record does hold is small. The median loan is $100,000, and half of the subdivision loans fall between $40,000 and $417,500, sizes that look closer to equipment or working capital for a land development business than to the cost of land and site infrastructure.

A record that stops after FY2023

Annual volume was always low, from 2 loans in FY2017 to a peak of 8 loans worth $5.5 million in FY2021, with 6 in FY2019 and 6 in FY2020. After FY2023 the record shows no approvals at all: 0 loans in FY2024, FY2025 and FY2026. The cancellation floor for subdivision approvals dated FY2017 to FY2024 is 12.5%, and the ceiling matches it at 12.5%. The charge-off cohort for subdivision loans is under 30, which Loan Analytics treats as too few to print a rate, a presentation rule of its own, so the page gives no loss figure and a reader should not take that as a clean record. U.S. Bank, National Association holds 7 of these loans worth $1.0 million. California has 6 loans and Oklahoma 4, with Arizona and Texas at 3. Franchised borrowers account for 3.1%.

What a land subdivision study has to test

Whatever the lender, a subdivision feasibility study is a study of absorption and carry, not of debt service coverage in the usual sense. It has to show demand from lot and home sales in the submarket, the builders active there and their takedown pace, and competing lots already entitled or under development. Cost covers entitlement, engineering, roads, utilities, stormwater and any off-site improvements the jurisdiction will require, with a contingency for delays. The repayment test is the cash flow of lot sales against interest carried and development spending, run at a slower sales pace and lower lot prices than the developer's plan. The appraisal will value the land as is, as entitled and as finished lots, with a discount for the time needed to sell them, and the study should support the absorption rate behind that discount, since it decides how much a lender can recover. These files carry no coding caveat for land subdivision, so the figures above are SBA's own counts for the class.