Owner-occupied, low injection
SBA 504 & 7(a)
Owner-occupied real estate for operating businesses, with a smaller equity injection than conventional debt.
These are business loans secured by real estate, not investment property loans. The rule that governs both programmes is occupancy: for an existing building the business must occupy at least 51% of the rentable area, and for new construction at least 60% on day one with a plan to reach 80%.
What this programme covers
- SBA 504: a conventional first mortgage, a CDC/SBA debenture in second position, and the borrower’s injection
- SBA 7(a): a single note, more flexible on use of proceeds, floating more often than fixed
- 51% owner-occupancy for an existing building; 60% at occupancy rising to 80% for new construction
- Long amortisation — twenty-five years on real estate — with no balloon on the 504 debenture
Business cash flow binds these deals. The property matters, but a business that cannot cover the payment does not get the loan because the building appraised well.
Test it on your numbersWhat underwriting actually reads
The business, first
Three years of business tax returns, interim statements, and a debt service coverage calculation on business cash flow — not on rent.
The occupancy test
Rentable square feet occupied by the operating company, measured, not estimated. Leased-out space is permitted up to the balance.
The injection
Cash, or in some cases equity in land already owned. Special-purpose property and start-ups carry a larger injection requirement.
The guarantors
Every owner of 20% or more personally guarantees. There is no non-recourse version of this programme.
Who it suits
- A tenant buying the building it has leased for years
- A practice or workshop expanding into owned space
- Refinancing expensive existing business debt secured by real estate
- Not this programme: Pure investment property. If the business does not occupy the majority of it, it is a conventional deal.
Illustrative scenarios in this class
- S-07 — illustrativeSBA 504 for a fabrication shop$3,690,000 · DSCR bindsSized on business cash flow, not rent — NOI is shown as zero because the operating company occupies 78% and pays no rent to itself. A 50/40/10 structure puts $410K of injection against a $4.1M project.
Questions on this programme
Is the 504 rate really below market?
The debenture is fixed and typically inexpensive, but it sits behind a conventional first, so the blended rate is often close to conventional pricing. The real difference is the injection: roughly 10% instead of 25–30%.
How long does a 504 take?
Longer than conventional, because there are two lenders and a CDC. Any specific number of days on this page would be invented, so none is given.