The two primary SBA programs for owner-occupied commercial real estate are SBA 504 (10% down, fixed CDC tranche, for major projects) and SBA 7(a) (10% down, variable rate, up to $5M) — both require the business to occupy at least 51% of the property. Conventional CRE financing with 20–30% down is required for investment-only properties or transactions above program limits.
The SBA 504 loan program is specifically designed for long-term, fixed-rate financing of owner-occupied commercial real estate. The program pairs a conventional first-lien bank loan (50% of project cost) with a CDC debenture (40%) and a borrower equity injection (10%). The CDC debenture is fixed-rate for 20 or 25 years. For most businesses, the 504 structure delivers the lowest effective interest rate and smallest down payment available for commercial real estate purchase.
Both SBA 504 and SBA 7(a) real estate loans require the borrowing business to occupy at least 51% of the total rentable square footage of an existing building — or commit to occupying 60% of a new construction project, with a path to 80% within 10 years. Per SBA SOP 50 10, this owner-occupancy threshold is non-negotiable for the SBA guarantee to apply. A business that wants to purchase primarily as an investment (tenant-occupied building) must use conventional commercial financing instead.
SBA 504 and 7(a) CRE loans require a global DSCR of at least 1.15x — the business's net operating income must cover all debt obligations including the new mortgage by 15%. Loan-to-value (LTV) is effectively set by the equity injection requirement: a 10% down payment produces a 90% LTV. Most conventional CRE lenders cap LTV at 75–80% (20–25% down) without an SBA guarantee. For properties with strong cap rates, some commercial lenders will go to 80% LTV on conventional terms.
SBA 7(a) is the right vehicle for CRE purchases when: the project includes both real estate and business acquisition in a single transaction, the property is specialized (a restaurant buying its building rather than a generic office), or the borrower prefers a single lender relationship over the 504's three-party structure. The 7(a) caps at $5M and carries a variable rate tied to Prime; 504 CDC debentures are fixed-rate, making 504 better for rate-sensitive buyers on longer holds.
Conventional commercial real estate financing is required when: the property is investor-owned (below 51% owner-occupancy), the project exceeds SBA program limits, or the borrower is a passive investment entity. Conventional CRE loans require 20–30% down, typically carry 5–10 year terms with a balloon, and are priced on SOFR or Treasury spreads without an SBA rate cap. Portfolio lenders (community banks, credit unions) are often more flexible on conventional CRE terms than national banks.
SBA 504: Bank first lien $500,000 (50%) + CDC debenture $400,000 (40%) fixed 20-year + borrower injection $100,000 (10%). Effective blended rate lower than 7(a) on a 20-year hold. SBA 7(a): Single loan $900,000 (90% LTV) + borrower injection $100,000 (10%). Variable rate, up to 25-year amortization. Better if deal includes equipment or working capital in the same request.