SBA 504 and 7(a) loans
If your business will occupy at least 51% of the building, SBA financing lets you buy it with as little as 10% down: a fraction of what a conventional commercial lender requires, with amortization no bank will match.
Who this is for
Business owners who are tired of paying rent. A dental practice buying its own building. A machine shop that has outgrown its lease. A distributor buying the warehouse next door. A franchisee buying the real estate under a restaurant. Any operating business that will occupy the majority of a building it wants to own.
Why the structure matters more than the rate
The headline comparison people make is SBA’s rate against a bank’s rate, and it is the wrong comparison. A conventional commercial loan on an owner occupied building typically means 25 to 30% down, a five year term with a balloon, and twenty-year amortization. SBA 504 means 10% down, twenty-five years, fully amortizing, with the 40% CDC piece fixed for the life of the debenture.
The capital you do not put down stays in the business, where it earns your business’s return rather than a landlord’s. And you never have to refinance into whatever the market looks like in year five. For most owner-users, those two facts dominate a rate difference.
What we need to quote
- Three years of business tax returns and interim financials
- Three years of personal tax returns for each 20%+ owner
- Personal financial statement for each guarantor
- The property: address, price or value, size, and how much of it you will occupy
- A debt schedule for the business
- Business history, how long you have operated and how it has trended
SBA diligence is heavier than anything else on this site. The trade is real: more paperwork, materially less money out of your pocket.
SBA questions
504 or 7(a)?
504 is purpose-built for real estate and heavy equipment. It splits the deal three ways, a conventional first from a bank at about 50%, a 40% second from a Certified Development Company funded by a debenture at a fixed rate for the full term, and 10% from you. That fixed second is the reason most owner-users should start with 504.
7(a) is the flexible one: real estate, but also working capital, business acquisition, partner buyouts, equipment and debt refinance, all in a single loan up to $5MM guaranteed. It is usually variable-rate and tied to prime. If you need money for things that are not the building, 7(a) is the answer.
Do I really only need 10% down?
Usually. Standard 504 is 10% borrower injection. It rises to 15% for a special-purpose property (a hotel, a car wash, a bowling alley) or a start-up business, and to 20% when both apply. Compared with the 25 to 35% equity a conventional commercial lender wants, that difference is often what makes owning the building possible at all.
What does the 51% occupancy rule mean in practice?
Your operating business must occupy at least 51% of the rentable square footage of an existing building, or 60% of a new construction project with a plan to reach 80% over ten years. You can lease the balance to tenants and the rental income counts. Structurally, an operating company typically leases the building from an affiliated holding entity that owns it, a standard and fully acceptable arrangement.
How long does SBA actually take?
Sixty to ninety days for a straightforward real estate purchase, and it can run longer with a 504 because the debenture funds on a monthly schedule after closing, with the bank interim-financing the CDC portion in the meantime. Anyone promising you thirty days on an SBA purchase is describing a different loan. If the seller will not wait, a bridge loan can close the purchase and be refinanced into SBA afterward: structure that at the start, because the refinance rules matter.
What are the fees?
SBA guaranty fees are calculated on the guaranteed portion and vary by program and loan size; CDC, packaging and servicing fees apply on 504; and normal third-party costs, appraisal, environmental, title, apply as on any commercial loan. A meaningful part of the cost can be financed into the loan. We lay out the full number against a conventional alternative before you apply, because the honest comparison is all in cost over your hold period, not the headline rate.
Can I refinance existing debt with SBA?
Often, yes. Both 504 and 7(a) have refinance programs, and 504 debt refinance with expansion has been a particularly useful tool for owner-users sitting on maturing conventional debt at a payment their cash flow no longer supports. Eligibility turns on the original use of the debt being refinanced, so send us the existing note early.
Every deal gets a real answer
Tell us the property, the plan and the number you need. A credit officer reads it and tells you what it will support.
- Texas hard money. A term sheet from the people who fund the loan.
- Commercial, all 50 states. Quotes from the desks that cover your asset.
- Outside the box? A straight reason, and usually a name that does fund it.