Case Study · Arkansas · Quick-Service Restaurant · SBA 7(a)
Quick-Service Restaurant Feasibility Study, Arkansas — An SBA 7(a) Worked Case
This is how our independent feasibility study company and consultant team analyzed a ground-up, franchised drive-thru quick-service restaurant underwritten to an SBA 7(a) credit, from trade-area and drive-thru demand and the FDD Item 19 read through the debt-service coverage a lender must document. It is a representative, anonymized worked example of the methodology — not a specific client deal — set on a fast-growing suburban commuter corridor in Northwest Arkansas.
A new drive-thru pad on a Northwest Arkansas commuter arterial.
A sponsor came to our feasibility study company with a ground-up, single-unit franchise of an established national drive-thru QSR brand, and an SBA 7(a) lender that needed the projected cash flow independently tested before it would commit. The subject is a roughly 0.9-acre hard corner on a signalized commuter arterial carrying about 26,000 vehicles per day, in a fast-growing outer-ring submarket of Northwest Arkansas. The build program is a 2,400-square-foot freestanding prototype with a dual drive-thru lane, sized for an off-premise-led operation.
Because a QSR franchise is a going-concern operating business rather than a passive real-estate play, the lender's question is not “what is the pad worth” but “can this specific site generate the average unit volume, ramp, and four-wall margin to service this specific loan.”4 SBA eligibility for the brand also runs through the reinstated Franchise Directory, a binary gate that must clear before the credit can be structured at all.7 Our scope was the independent demand, capture, competition, and debt-service analysis that supports that credit.
Representative and anonymized. Every figure below is illustrative of a typical engagement of this type; the site, corridor, brand, and parties are composited, not a real named borrower, address, or completed transaction.
Trade-area and drive-thru demand.
The demand read starts with people, trips, and dayparts, not a system-average AUV dropped onto a site. The three-mile ring holds roughly 48,000 residents growing about 2.4 percent a year, layered over a daytime population inflated by the region's corporate-vendor office ecosystem and strong peak-directional commuter flow on the arterial.
Average unit volume is the primary value driver, and no figure in QSR is more misread. AUV is a revenue number, not profit, and it diverges wildly by brand: the QSR 50 placed McDonald's near $4.0 million, Taco Bell near $2.1 million, Wendy's near $2.06 million, and Jack in the Box near $2.03 million, and McDonald's 2024 FDD Item 19 reported average annual sales of $3,966,000 against a median of $3,797,000.3 Item 19 is voluntary and survivorship-biased under the FTC Franchise Rule, and a new unit ramps over one to three years rather than opening at the system average, so a defensible study underwrites an explicit ramp curve tied to the specific site.3 Off-premise formats now drive more than 70 percent of sales at leading brands, and the drive-thru is the engine of that demand.2 On the trade-area population, the vendor-office daytime base, the commuter corridor, and a dual-lane going-home hard corner, the model supports a stabilized AUV near $2.10 million — a defensible mid-tier placement between the Item 19 median and low, reached over a graded three-year ramp of roughly $1.70 million, $1.95 million, and $2.10 million.
| Demand driver | Basis | Supported figure |
|---|---|---|
| Trade-area population (3-mi ring) | ~48,000 residents, growing ~2.4%/yr, plus vendor-office daytime population1 | Rising captive base |
| Corridor traffic | ~26,000 vehicles/day, peak-directional AM/PM | Primary drive-thru capture |
| Drive-thru suitability | Dual-lane, going-home hard corner (~180+ cars/hr vs ~120 single)6 | Throughput headroom |
| Stabilized average unit volume | Mid-tier placement against the FDD Item 19 average/median read3 | ≈ $2.10M/yr |
| Ramp to stabilization | Graded 1-to-3-year curve, ~81% → 93% → 100% of stabilized | Yr1 ≈ $1.70M, Yr2 ≈ $1.95M |
AUV, Item 19, and off-premise logic grounded in the QSR 50, McDonald's 2024 FDD, and industry off-premise and drive-thru data; see sources 2, 3, and 6. Figures are illustrative of the engagement type.
An unserved going-home corner as rooftops outrun pads.
Several QSR competitors sit within three miles, but none is a modern dual-lane drive-thru on the going-home hard corner the subject occupies. Rooftops and daytime vendor population are arriving faster than new pads, and with no general Certificate-of-Need gate on retail, supply is market-set — so the study scans permitted pads, not just the standing set.
| Competitor | Segment | Format | Distance | Read |
|---|---|---|---|---|
| Competitor A | National burger | Single-lane drive-thru | 0.7 mi | Nearest; dated, single lane |
| Competitor B | National chicken | Drive-thru | 1.3 mi | Strong daypart, cross-corridor |
| Competitor C | Coffee & beverage | Double drive-thru | 1.6 mi | AM daypart, limited overlap |
| Competitor D | Regional Mexican | Drive-thru | 2.1 mi | Value-led, off-peak side |
| Competitor E | National sandwich | In-line, no drive-thru | 2.4 mi | Weak off-premise capture |
| Competitor F | Independent | Dine-in | 2.8 mi | Trailing-edge, no drive-thru |
Competitive set surveyed for the engagement; anonymized. Announced and permitted pad supply was scanned, not just the standing set, consistent with institutional site-selection practice.
Only one competitor sits inside a mile, and it is a dated, single-lane box in a different segment — a weak defender against a new dual-lane drive-thru with throughput headroom and a growing captive base behind it. The nearest same-segment operator is cross-corridor, on the far side of the peak-directional flow. A rigorous study does not stop at the standing set: it scans announced and permitted pads so the capture forecast is not quietly overstated by new drive-thrus the trailing data cannot yet see.6 Here the read is a genuinely unserved going-home corner — rooftop and daytime-population growth is outpacing new pad development, and the subject fills the gap rather than splitting a saturated trade area.
Arkansas macro: a Sun Belt tailwind at low cost.
Northwest Arkansas is one of the strongest quick-service demand backdrops in the country. The Fayetteville–Springdale–Rogers metro grew 2.4 percent to 622,177 in 2025 and ranked the ninth-fastest-growing U.S. metro — car-centric, drive-thru-favoring, and low-cost to build.
The demand engine is a rare mix of population growth and daytime population. Three Fortune 500 headquarters — Walmart, Tyson Foods, and J.B. Hunt — and roughly 1,300 supplier offices maintained to serve them concentrate a large weekday lunch daypart on the corridors that feed them.1 Sun Belt suburban markets are the primary QSR growth corridor precisely because of this profile: car-centric demographics favor drive-thru pad development, pad sites are available, and construction cost runs below the national average, with the Southeast roughly 10 to 20 percent below.5 One analytical caveat cuts the other way: Arkansas has no general Certificate-of-Need regime for retail, so QSR supply is set by the market rather than a permit gate, and competition risk is real — which is exactly why the study scans permitted pads.1
Cost and capital both cut in the sponsor's favor. Arkansas is aggressively cutting income tax, with the top individual rate falling to 3.7 percent effective January 1, 2026 and a low effective property-tax rate near 0.56 percent, easing the operating-expense and owner-return math.11 The SBA channel here is deep: the Arkansas District Office in Little Rock serves all 75 counties, active 7(a) lenders include Arvest Bank, Bank OZK, Simmons Bank, and Southern Bancorp alongside national specialists such as Live Oak Bank, and 504 real estate routes through Six Bridges Capital Corporation, the affiliate of Arkansas Capital Corporation.10 And the SBA's combined 7(a)-plus-504 ceiling doubled to $10 million effective July 4, 2026, enlarging bankable deal size for operators building toward a small platform.9
Why the corner captures the corridor and the daypart.
Household income, daytime population, and growth all point the same direction, and the intersection geometry converts that demand into drive-thru trips across two dayparts.
The three-mile trade area carries a median household income comfortably supportive of QSR frequency, and a daytime population inflated by the vendor-office commute that fills the midday lunch daypart. The growth rate near 2.4 percent a year means trailing Census counts understate the captive base, a common outer-ring distortion a careful study corrects for rather than extrapolates.1
Geometry does the rest. The subject occupies the hard corner on the going-home side of a signalized intersection, where peak-directional evening traffic decelerates and turns — the highest-conversion position on the corridor for the impulse dinner trip — while the weekday vendor-office lunch feeds the midday peak. A dual drive-thru lane clears roughly 180-plus cars per hour against about 120 for a single lane, so the site has real throughput headroom that a smaller box would surrender in a stacked queue.6 The nearest competitor's dated single-lane site cannot match that capture, which is why the model credits the subject with a defensible mid-tier AUV placement rather than a top-decile one.
The SBA 7(a) structure.
Total project cost lands at $2.90 million. The 7(a) program can finance the franchise fee, build-out, equipment, and working capital in a single loan, which is why an owner-operated, ground-up franchise routes here rather than to a fixed-asset-only 504.
| Cost component | Amount |
|---|---|
| Land & pad acquisition (~0.9 acre) | $0.45M |
| Site work, utilities & drive-thru lanes | $0.38M |
| Building shell (2,400 sf prototype) | $0.92M |
| Kitchen equipment & FF&E | $0.52M |
| Drive-thru technology, POS & signage | $0.16M |
| Initial franchise fee | $0.05M |
| Soft costs & contingency | $0.19M |
| Working capital & pre-opening | $0.23M |
| Total project cost | $2.90M |
| Item | Figure |
|---|---|
| SBA 7(a) loan (90%) | $2.61M |
| Borrower equity injection (10%) | $0.29M |
| Term / amortization | 10-year term / 25-year amortization |
| Illustrative rate | ~10.25% (Prime + 2.75%) |
| Annual debt service | ≈ $290k |
Structure per SBA 7(a) conventions under SOP 50 10 8; 10% equity injection for startups; single-loan 7(a) cap $5M. See sources 7 and 8.
The equity injection sits at the restored 10 percent minimum for a start-up under SOP 50 10 8, and the deal has to clear the Franchise Directory gate first: the brand must be listed and the franchisor must have executed the SBA Franchisor Certification, with per-brand eligibility for any multi-brand operator and a minimum business credit score of 165.7 At $2.61 million the loan sits well within the $5 million single-loan 7(a) ceiling, so the franchise fee, build-out, equipment, and working capital all fund inside one 7(a) facility.8 On a 25-year amortization at an illustrative 10.25 percent (Prime plus 2.75), annual debt service is about $290,000 — the number the projected coverage has to clear. The study exists to support exactly that: the debt-service coverage the lender must document to approve the credit, tested against an independent read of demand rather than the sponsor's own projection.
Feasible and bankable, on coverage the credit can document.
The stabilized model builds store-level operating income from average unit volume, nets prime cost, the franchise load, and other operating expense, and carries the coverage to the SBA floor and beyond.
| Line | Basis | Amount |
|---|---|---|
| Net sales (stabilized AUV) | Year 3 supported average unit volume | $2.100M |
| Food & paper (COGS) | ~30% of sales4 | ($0.630M) |
| Labor & benefits | ~27% of sales4 | ($0.567M) |
| Royalty | 5% of sales4 | ($0.105M) |
| Ad fund | 4% of sales4 | ($0.084M) |
| Other operating expense | Utilities, R&M, insurance, supplies, local marketing, card fees, G&A | ($0.279M) |
| Store-level operating income (NOI) | Sales less all four-wall costs | ≈ $0.435M |
Prime cost of ~57% sits inside the 55–65% range and the franchise load of 9% inside the 6-to-10-percent-plus range; store-level margin ~20.7% is a through-cycle owner-operated figure before debt service, income tax, and reserves. See sources 3 and 4. Figures are illustrative.
| Year | Stage | NOI | Debt-service basis | DSCR |
|---|---|---|---|---|
| Year 1 | Ramp (interest-only bridge) | ~$281k | Interest-only ~$268k | 1.05 |
| Year 2 | Building | ~$377k | Full amortizing ~$290k | 1.30 |
| Year 3 | Stabilized | ~$435k | Full amortizing ~$290k | 1.50 |
DSCR computed as NOI divided by the period debt-service obligation. Year 1 NOI reflects the ramp AUV of ~$1.70M at a compressed opening margin; Year 2 ~$1.95M. See source 8 for the ~1.15x coverage convention.
The stabilized 1.50x coverage is the figure the lender documents, and it clears the SBA's roughly 1.15x floor with real headroom.8 By Year 2 the project already covers fully amortizing debt service at 1.30x. The Year 1 figure of 1.05x is intentionally thin — it is the ramp year — which is exactly why the structure carries an interest-only bridge through stabilization: the bridge covers the ramp, and permanent, fully amortizing coverage is measured once the unit reaches its supportable AUV. Modeling day-one system-average AUV, or understating the 9 percent royalty-and-ad load that comes off the top, is among the most common ways these pro formas fail review; the ramp here is deliberately graded.3
On the equity side, the $0.29 million injection earns growing levered free cash flow — near breakeven in the interest-only ramp year, building to roughly $85,000 a year once stabilized and net of a franchise re-image and equipment-replacement reserve, a genuine QSR cash drain given brand-mandated remodel cycles.4 The exit is valued on a going-concern basis that blends the operating business and the owned real estate: capitalizing a Year-10 store-level cash flow near $0.50 million implies a gross sale around $3.0 million, and roughly $0.65 million of net equity after selling costs and the outstanding SBA balance near $2.2 million.3 Holding menu-price growth modest and underwriting the wage floor and third-party-delivery mix directly — the two margin variables a QSR is most exposed to — the blended result is an illustrative levered equity IRR of about 23 percent over a 10-year hold.12
Verdict: financially feasible and bankable. On independently derived demand, a stabilized 1.50x DSCR, and a ~23% levered equity IRR, the projections support the SBA 7(a) credit.
Independent AUV, ramp, franchise load, and DSCR stress.
The engagement was scoped the way a credit committee reads it. As an independent feasibility consultant, our role is to test the sponsor's projection against the market, not to restate it — the value of the deliverable is precisely that it carries no stake in the outcome. We derived average unit volume from the trade area, corridor traffic, the vendor-office daytime population, drive-thru suitability, and the competitive set, then placed it against the FDD Item 19 average and median read rather than dropping the system average onto the site. Sales and margin were modeled on a graded ramp, with the full 9 percent royalty-and-ad load taken off the top ahead of the four-wall margin.
The coverage analysis was then stress-tested. We ran the debt-service coverage against AUV and prime-cost downside — the two variables a QSR is most exposed to, since labor and food cost drive the 55-to-65-percent prime line — to confirm the credit still holds when volume or margin compress.12 Eligibility was confirmed at the gate: a Franchise Directory listing and an executed SBA Franchisor Certification for the brand.7 One scope boundary is worth stating plainly: as the feasibility consultant, we reference, but do not perform, the Phase I environmental site assessment; QSR is a low-environmental-risk use, but prior gas-station or dry-cleaner site history is a separate environmental professional's engagement that runs in parallel to the study. That combination — independent demand, capture, competition, and a stressed DSCR — is what lets the lender rely on the file.
Underwriting an Arkansas QSR for an SBA loan? Start with the feasibility study.
Feasibility Study Company prepares independent quick-service restaurant feasibility studies for SBA 7(a) and 504 credits, built to the coverage standard your lender must document. A methodology briefing walks through the average unit volume, ramp, franchise-load, competition, and DSCR analysis behind a case like this one, calibrated to your brand, format, and Arkansas corridor.
Request a methodology briefingData sources and dates.
The deal figures are illustrative of the engagement type; the market data that grounds each dimension is real and sourced, drawn from our standing Arkansas, Quick-Service Restaurant, and SBA 7(a) & 504 analyses and the primary authorities they cite.
- U.S. Census Bureau, Vintage 2024 and 2025 population estimates, via Talk Business & Politics and the Arkansas Economic Development Institute: the Fayetteville–Springdale–Rogers (Northwest Arkansas) metro up 2.4% to 622,177, the ninth-fastest-growing U.S. metro, anchored by Walmart, Tyson Foods, and J.B. Hunt and roughly 1,300 supplier offices; Arkansas has no general Certificate-of-Need regime for retail, so QSR supply is market-driven.
- IBISWorld (March 2026) and the National Restaurant Association, 2025–2026 State of the Restaurant Industry: U.S. Fast Food Restaurants industry $416.0 billion in 2026 across ~223,000 businesses; restaurant and foodservice sales projected $1.55 trillion in 2026; more than 200,000 QSR locations; off-premise formats over 70% of sales at leading brands (Mordor Intelligence, 2025–2026).
- QSR Magazine, QSR 50 (year-end 2023 data), and McDonald's 2025 FDD via Franchise Chatter (October 2025): brand AUV of McDonald's ~$4.0M, Taco Bell ~$2.1M, Wendy's ~$2.06M, and Jack in the Box ~$2.03M; McDonald's 2024 Item 19 average annual sales $3,966,000 against a median of $3,797,000; Item 19 voluntary and survivorship-biased under the FTC Franchise Rule, with a one-to-three-year ramp.
- CT Acquisitions (2026) and culta.ai / National Restaurant Association (2026): franchise royalty of roughly 4–6% and ad fund of roughly 2–4% (combined 6-to-10-percent-plus load); prime cost, food plus labor, of 55–65% of sales, with food 25–30% and labor 25–28%; well-run four-wall EBITDA in a 12-to-30-percent range; a 6% royalty reducing franchisee cash earnings 15–25%; brand-mandated remodel and re-image cycles.
- Terrapin Construction Group and WFO Construction (2026): all-in development of roughly $1.3–$2.5 million for an 1,800-square-foot freestanding drive-thru QSR, ground-up prototypes at about $220–$580 per square foot before land, with the Southeast roughly 10–20% below the national average; Sun Belt suburban markets the primary QSR growth corridor.
- Revenue Management Solutions (2025) and qsr.pro (2026): drive-thru's share of QSR orders easing from 83% in 2020 to about 65% in 2025 as dine-in and delivery recovered; a single drive-thru lane clearing roughly 120 cars per hour against 180-plus for a dual lane; institutional site-selection practice scanning announced and permitted pad supply.
- U.S. Small Business Administration, SOP 50 10 8 (effective June 1, 2025), via Starfield & Smith, Taft Law, and Congress.gov CRS (2025): reinstatement of the Franchise Directory, requiring a listed brand and an executed SBA Franchisor Certification for streamlined eligibility; per-brand eligibility for multi-brand franchisees; and restored pre-2023 underwriting, including a 10% equity injection for startups and a minimum business credit score of 165.
- U.S. Small Business Administration SOP 50 10 8 and 13 CFR 120.160(b); Growth Corp / Bay Street Lending: a feasibility study is discretionary but expected for startup and ground-up projects with no operating history; owner-occupancy of 51% (existing) or 60% (new construction); 7(a) can finance the franchise fee, build-out, equipment, and working capital in one loan; single-loan 7(a) cap of $5 million; SBA/504 DSCR convention of roughly 1.15x or higher.
- SBA Policy Notice 5000-879058 (dated May 18, 2026; effective July 4, 2026), via NAGGL (2026): decoupling of the 7(a) and 504 loan caps to a combined $10 million, the highest in agency history.
- U.S. Small Business Administration, Arkansas District Office directory, Little Rock (all 75 counties, current 2026); Six Bridges Capital Corporation and Arkansas Capital Corporation (504); Arvest Bank, Bank OZK, Simmons Bank, and Southern Bancorp (7(a) activity); Live Oak Bank, the number-one SBA 7(a) lender by dollar volume nationally in fiscal 2025; USDA Rural Development Arkansas state office, with 54 of 75 counties rural and USDA-eligible.
- Tax Foundation and the Arkansas Policy Foundation / Arkansas Advocate (2026): Arkansas top individual income-tax rate cut to 3.7% effective January 1, 2026 (top corporate rate to 4.1% effective January 1, 2027), with a low effective property-tax rate near 0.56%.
- Cato Institute (November 2025) and Mordor Intelligence (2025–2026): the high-cost contrast of California's $20 fast-food minimum wage under AB 1228, against lower-cost Sun Belt state minimums near the federal floor; labor at roughly 25–35% of sales and third-party-delivery commissions of 15–30% (effective 30–40%) as the two margin variables to stress directly.