You've found the perfect location, designed the concept, and calculated the numbers. Now you need financing. You walk into the bank with a business plan and a confident pitch — and the loan officer asks for something you didn't prepare: a feasibility study.
This scenario is increasingly common. Banks and commercial lenders are moving beyond traditional business plans toward requiring independent feasibility analysis for business loans — particularly for capital-intensive ventures like restaurants, hotels, medical practices, and property developments. Understanding what they want and why they want it dramatically improves your chances of approval.
Why Banks Are Requiring Feasibility Studies
Banks have learned expensive lessons. A business plan is an advocacy document — it's written by the founder to present the best possible case for the business. It's inherently optimistic. And optimistic projections have cost banks billions in defaulted loans.
A feasibility study is an analytical document. Its purpose isn't to sell the business — it's to objectively evaluate whether the business can generate enough cash flow to service the debt. That objectivity is what banks need to make lending decisions.
The shift toward feasibility requirements is strongest in three areas: commercial property and construction loans (where the investment is large and illiquid), hospitality and food service loans (where failure rates are high), and healthcare practice loans (where the investment in equipment is substantial).
What Banks Look For in a Feasibility Study
1. Debt Service Coverage Ratio (DSCR)
This is the metric banks care about most. DSCR measures whether the business generates enough net operating income to cover its loan repayments — principal plus interest.
DSCR = Net Operating Income ÷ Total Annual Debt ServiceBanks typically require a minimum DSCR of 1.25x, meaning the business must generate 25% more cash flow than needed to make loan payments. Conservative lenders may require 1.50x. Some government-backed programs accept 1.15x.
A DSCR of 1.25x at your base-case projections is the minimum. Banks want to see what happens under stress — if revenue drops 15%, does DSCR remain above 1.0x? If it doesn't, the loan is at risk in a downturn.
2. Loan-to-Value Ratio (LTV)
For secured loans, banks assess the value of the collateral relative to the loan amount. Lower LTV means lower risk for the bank.
Typical LTV requirements: commercial property 65–75%, equipment 70–80%, business acquisition 60–70%.
3. Market Viability Evidence
Banks want to see that the market can support the business — not just your word, but actual data. This means market sizing with cited sources, competitive analysis showing how your business fits in the landscape, and demand indicators that support your revenue projections.
A feasibility study with Google Search-grounded data and verifiable citations provides exactly this evidence. A business plan with unsourced market estimates does not.
4. NPV and IRR
Sophisticated commercial lenders — particularly for larger loans — want to see that the investment generates adequate returns. A positive NPV confirms that the project creates value after accounting for the time value of money. An IRR above the cost of capital confirms that returns are sufficient.
These metrics aren't just for the bank's benefit. They demonstrate that you've done rigorous financial analysis — which signals to the lender that you understand the economics of your business.
5. Sensitivity Analysis
Banks need to know what happens when things go wrong — because things always deviate from plan. Your feasibility study should include sensitivity analysis showing the impact of revenue shortfalls (10%, 15%, 20% below projections), cost overruns (10%, 15%, 20% above budget), combined adverse scenarios, and the specific conditions under which DSCR falls below 1.0x.
If your business can maintain a DSCR above 1.0x even with revenue 15% below projections, the bank has confidence that the loan is serviceable under realistic stress conditions.
6. Realistic Ramp-Up Modelling
One of the most common reasons loan applications fail is that the financial projections assume full revenue from day one. Banks know that new businesses take time to reach stabilised performance — typically 6–18 months depending on the industry.
Your feasibility study should model the ramp-up explicitly: month-by-month projections for at least the first year, showing how revenue builds from opening toward stabilised levels. The study should also show that you have sufficient capital reserves to cover the cash flow shortfall during ramp-up without missing loan payments.
How to Structure a Feasibility Study for a Bank Loan
Executive Summary (1 page)
Lead with the numbers banks care about: total investment required, loan amount requested, projected DSCR at stabilisation, NPV and IRR, payback period, and the key risk factors with mitigation strategies. The loan officer should be able to read this single page and know whether the application merits further review.
Market Analysis (3–5 pages)
Market sizing with TAM/SAM/SOM and cited data sources. Competitive analysis with specific competitors named and benchmarked. Demand evidence — population data, industry trends, comparable business performance.
Financial Model (5–10 pages + Excel)
Complete CAPEX breakdown with line items and contingency. Revenue model built bottom-up from verifiable assumptions. Operating expense budget with industry benchmark comparisons. Multi-year cash flow projections (minimum 5 years, ideally 10). DSCR calculation for each projected year. NPV, IRR, and payback period.
Banks strongly prefer an editable Excel model alongside the PDF report. This allows the credit analyst to test their own assumptions and adjust variables — which builds confidence in the analysis.
Sensitivity Analysis (2–3 pages)
Revenue sensitivity, cost sensitivity, combined stress scenarios, and explicit identification of DSCR break-even conditions.
Risk Assessment (1–2 pages)
Key risks ranked by probability and impact, with specific mitigation strategies for each.
Common Loan Application Mistakes
Submitting a business plan instead of a feasibility study. Business plans are advocacy documents. Banks want objective analysis with verifiable data and investment-grade financial metrics. If the bank asks for a feasibility study, a business plan — no matter how detailed — doesn't satisfy the requirement. Projections without supporting evidence. Revenue assumptions must be traceable to market data. "We project $1.2 million in year-one revenue" means nothing without the market analysis that supports it. No sensitivity analysis. Single-scenario projections signal that you haven't considered what could go wrong — which tells the bank you're either naïve or deliberately hiding risk. Optimistic ramp-up. Projecting full revenue from month one. Banks see through this immediately and it undermines the credibility of the entire application. Missing DSCR calculation. If your feasibility study doesn't calculate DSCR, the loan officer has to do it themselves — and they'll use more conservative assumptions than you would.The Bottom Line
Getting a business loan approved is increasingly about demonstrating viability through rigorous analysis, not just presenting an attractive vision. Banks want data, financial metrics, and stress testing. A professional feasibility study — with real market data, NPV/IRR analysis, DSCR calculation, and sensitivity testing — gives them exactly what they need to say yes.
SimpleFeasibility generates bank-ready feasibility studies with cited market data, complete financial modelling including DSCR/NPV/IRR/payback, editable Excel models, and interactive sensitivity analysis. Professional PDF output ready for loan applications. Prepare Your Loan Application →Related Articles: