What Is an Owner-Occupied Commercial Real Estate Loan?
An owner-occupied commercial real estate loan finances a building that your own business will occupy, such as an office, warehouse, shop, clinic or restaurant. Because the business itself pays the mortgage instead of relying on outside tenants, lenders and the SBA offer better terms than for investment property.
The SBA 504 and SBA 7(a) programs let qualifying businesses buy with about 10% down and long repayment terms. Conventional bank loans are also available, usually with 20-30% down.
Typical Terms
Down payment
As little as 10% (SBA)
SBA 504 rates
Fixed, from 7%
SBA 7(a) rates
Prime + 0-3%
Terms
Up to 25 years
Occupancy
51%+ of an existing building
Loan size
SBA portion up to $5M; larger total projects
Startups and special-purpose properties may need 15-20% down under SBA 504. New construction requires occupying at least 60% of the building.
Who It's For
- Businesses paying rent that would rather build equity
- Companies buying a building to expand or consolidate locations
- Owners building a new facility for their operations
- Businesses refinancing an owner-occupied property into a longer fixed term
What You'll Need
- Your business occupies at least 51% of an existing building (60% for new construction)
- Two to three years of business tax returns and current financials
- Cash flow that covers the new mortgage payment
- A down payment of about 10% for SBA loans, 20-30% for conventional
- An appraisal and environmental review of the property
How It Works
- 1
Choose the property
Share the address, price and how much of the building your business will use.
- 2
Match the program
We compare SBA 504, SBA 7(a) and conventional offers for your down payment, rate and term.
- 3
Appraisal and environmental review
The lender orders an appraisal and environmental report while underwriting your financials.
- 4
Close and move in
Close on the building; with SBA 504, the CDC portion is funded after closing through an SBA debenture.
SBA 504 vs. SBA 7(a) vs. Conventional
SBA 504 splits the project between a bank (about 50%), a Certified Development Company backed by the SBA (about 40%) and you (about 10%), with a long-term fixed rate on the CDC portion. SBA 7(a) is a single loan that can also include equipment, working capital or an acquisition. Conventional loans close faster with fewer forms but usually need 20-30% down and reset or balloon after 5 to 10 years.
Can I Lease Out Part of the Building?
Yes. Under SBA rules your business must occupy at least 51% of an existing building, so you can lease the rest to tenants, and that rent can help cover the mortgage.