Product Selection
What business loans are available for buying commercial real estate?
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 full picture
SBA 504 — purpose-built for owner-occupied CRE
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.
The 51% owner-occupancy rule
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.
DSCR and LTV thresholds
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) for CRE — when it fits
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 CRE — when SBA doesn't fit
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.
Financing structure is only one side of a passive-investment CRE purchase — the other is knowing whether the deal itself pencils. ClearValue Books' best real estate books for commercial investing covers the income-property valuation logic (cap rate, NOI) that applies once a purchase falls outside SBA's owner-occupancy rules and into conventional, investment-driven underwriting.
504 vs 7(a) CRE — Side-by-Side at $1M
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.
Commercial Real Estate Loans — Key Facts
- The SBA 504 program requires the borrowing business to occupy at least 51% of an existing building or 60% of a new construction — the owner-occupancy threshold is a condition of the SBA guarantee under SOP 50 10. — SBA — 504 Loan Program
- SBA SOP 50 10 sets the minimum global DSCR at 1.15x for all SBA-guaranteed real estate loans — the business's income after all expenses must exceed total debt service by at least 15%. — SBA — Standard Operating Procedure 50 10
- The Federal Reserve's 2026 Report on Employer Firms reports that real estate and equipment financing were the most common uses of business term loans among employer firms — with commercial real estate purchase being the largest single-transaction use of SBA programs. — Fed SBC Survey 2026
Key takeaways
- SBA 504 is purpose-built for owner-occupied CRE — 10% down, fixed 20-year CDC debenture, the lowest-cost CRE path for qualifying businesses.
- Both SBA 504 and 7(a) require 51% owner-occupancy — properties below that threshold require conventional CRE financing.
- DSCR minimum is 1.15x for SBA-guaranteed CRE; LTV is effectively 90% with the standard 10% equity injection.
- SBA 7(a) is preferable when the deal packages real estate + business acquisition or equipment in a single transaction.
- Conventional CRE requires 20–30% down and is the only option for investment-only or above-program-limit transactions.
- Start at small business financing to compare products, or apply at Find my match — one application routes to the right CRE program for your down payment and occupancy profile.
Frequently asked questions
What down payment do I need for an SBA loan on commercial real estate?
10% down for both SBA 504 and SBA 7(a) on owner-occupied commercial real estate — that's the equity injection required after the bank first lien (50%) and CDC debenture (40%) on a 504, or as the borrower share on a 7(a). Conventional (non-SBA) commercial real estate financing requires 20–30% down instead, since it doesn't carry the SBA guarantee that allows the lower injection.
What is the 51% owner-occupancy rule for SBA commercial real estate loans?
Per SBA SOP 50 10, the borrowing business must occupy at least 51% of the total rentable square footage of an existing building to qualify for SBA 504 or 7(a) real estate financing — or commit to occupying 60% of new construction, with a path to 80% within 10 years. This threshold is non-negotiable for the SBA guarantee to apply; a business buying primarily as a rental investment (tenant-occupied) must use conventional commercial financing instead.
SBA 504 or SBA 7(a) for buying a commercial building — which is better?
SBA 504 typically delivers the lowest effective rate and smallest down payment for a straightforward owner-occupied real estate purchase, since its CDC debenture (40% of the project) is fixed-rate for 20–25 years. SBA 7(a) fits better when the deal bundles real estate with a business acquisition or equipment purchase in one transaction, when the property is specialized, or when the borrower wants a single lender instead of 504's three-party structure — but 7(a) caps at $5M and carries a variable rate tied to Prime.
What DSCR do I need to qualify for an SBA commercial real estate loan?
SBA SOP 50 10 sets a minimum global debt service coverage ratio (DSCR) of 1.15x for SBA-guaranteed real estate loans — meaning the business's net operating income must exceed all debt obligations, including the new mortgage, by at least 15%. This is the SBA-wide floor; some lenders may require a higher DSCR based on the specific deal and industry.
Can I buy an investment property (not owner-occupied) with an SBA loan?
No. SBA 504 and 7(a) real estate loans both require at least 51% owner-occupancy by the borrowing business — properties bought primarily as a tenant-occupied investment don't qualify for either SBA program. Investment or below-threshold-occupancy purchases require conventional commercial real estate financing, which typically means 20–30% down and pricing off SOFR or Treasury spreads without an SBA rate cap.
Related products
Published 2026-05-21 · Updated 2026-08-02 · https://clearvaluelending.com/answers/business-loan-for-buying-commercial-real-estate