Owner-occupied commercial real estate for an operating business is best financed with SBA 504 (10/50/40 structure, fixed rate, 51%+ owner-occupied), SBA 7(a) for smaller deals, or conventional commercial mortgages. Down payments typically run 10–25%, and real estate is the collateral.
Business loans for real estate split into two distinct categories with different products: (1) owner-occupied commercial real estate — a business buying or renovating a building it will operate from (office, warehouse, retail, manufacturing) — and (2) investment/rental real estate — properties purchased to generate rental income. This page covers owner-occupied commercial real estate for operating businesses. Owner-occupied commercial real estate is the primary use case for the SBA 504 loan program and a significant use case for SBA 7(a) — both are structured for businesses that will occupy and operate from the financed property.
The SBA 504 loan program is specifically designed for owner-occupied commercial real estate and heavy equipment acquisitions. The 504 structure is a three-party split: the bank or conventional lender provides 50% of the project cost (first mortgage), the SBA-backed Certified Development Company (CDC) provides 40% via an SBA debenture (second mortgage, below-market fixed rate), and the borrower injects a minimum of 10%. The SBA/CDC portion carries a fixed interest rate set at the time of debenture sale — providing rate certainty on 40% of the financing for the life of the loan (typically 10 or 20 years). Eligibility requires the business to occupy at least 51% of the property; a business in an existing building must occupy 51%+ immediately, while for new construction the requirement rises to 60% occupancy.
For commercial real estate purchases under $500,000 — or for deals where the 504's three-party structure adds administrative complexity — the SBA 7(a) loan is a flexible alternative. SBA 7(a) can finance owner-occupied commercial real estate up to the program maximum ($5M currently, increasing to $10M for applications received after July 4, 2026 under current SBA guidance). The 7(a) uses a simpler two-party structure (bank + borrower) with SBA guaranteeing up to 85% of the loan. Terms run up to 25 years for real estate, with down payments typically 10–15%. Unlike 504, 7(a) proceeds can be used for mixed purposes — if a borrower needs both real estate and working capital in a single loan, 7(a) is the flexible instrument.
Businesses that do not qualify for or prefer not to use SBA programs can use conventional commercial mortgages from banks, credit unions, and commercial lenders. Conventional commercial mortgages typically require 20–25% down, have shorter terms (5–10 years with 15–25 year amortization creating balloon payments), and carry variable or fixed rates based on Treasury or SOFR benchmarks. For borrowers with strong personal credit, substantial business equity, and demonstrated DSCR above 1.25x, conventional commercial mortgages can be competitive with SBA products — especially when the SBA guarantee fee (3.5% of the guaranteed portion) makes the all-in cost of an SBA loan higher than a conventional alternative.
A Raleigh metal fabricator with $3.8M in revenue and 8 years in operation wants to buy a $1.5M warehouse it currently leases. Under SBA 504: the bank finances $750,000 (50%) as a first mortgage; the CDC/SBA provides a $600,000 second mortgage at a fixed rate; the borrower injects $150,000 (10%) as equity. The business occupies 100% of the warehouse — well above the 51% threshold — and the fixed rate on the SBA portion provides certainty for the 20-year debenture term.
SBA 504 real estate loans require the business to occupy at least 51% of the financed property. If you plan to lease out more than 49% of the building to third parties, the 504 program is not available — a conventional commercial mortgage or SBA 7(a) investment property loan may apply instead.