An SBA loan lets a small business buy the commercial building it operates from with a smaller down payment than a typical commercial mortgage. The two main programs are the SBA 504 loan, which commonly requires about 10% down and combines a bank loan with a loan from a Certified Development Company (CDC), and the SBA 7(a) loan, which can finance real estate along with other business needs. To qualify, the business generally must occupy most of the building: at least 51% of an existing building, or 60% of a newly built one. Investment properties you lease to others do not qualify.
This guide explains how SBA loans work for buying commercial property. Program rules change, so confirm current terms with an SBA lender.
SBA 504 vs. SBA 7(a) for real estate
| SBA 504 | SBA 7(a) | |
|---|---|---|
| Best for | Buying or building owner-occupied real estate and major equipment | Real estate plus working capital, business acquisition or other needs |
| Typical structure | Bank loan (about 50%), CDC loan (about 40%), borrower down payment (about 10%) | One loan from an SBA lender with an SBA guaranty |
| Down payment | Commonly 10%; can be higher for new businesses or special-purpose buildings | Set by the lender; often 10% or more |
| Loan size | Large projects possible through the bank and CDC portions | Up to the SBA's 7(a) maximum |
| Rate | CDC portion has a fixed rate | Often variable, set by the lender within SBA limits |
Who qualifies?
- A for-profit small business that meets SBA size standards.
- Owner-occupancy. The business must occupy at least 51% of an existing building (60% for new construction). You can lease the rest to other tenants.
- Ability to repay from business cash flow, plus reasonable credit and the owners' personal guarantees.
- Eligible use. Passive real estate investment and some business types are not eligible.
How the process works
- Talk to an SBA lender early to estimate how much you can borrow and what down payment you need.
- Find the property. Make sure it fits your business now and as you grow, and that zoning allows your use. See owner-user industrial buildings and warehouses with office space for sale.
- Sign a letter of intent and contract with enough time for financing and due diligence.
- Complete due diligence: appraisal, environmental report, inspections, title and survey. See our commercial due diligence checklist.
- Close. With a 504 loan, the bank often funds an interim loan until the CDC portion is funded.
Is buying right for your business?
Buying can lock in your occupancy cost, build equity and give you control of the building. It also ties up cash, adds maintenance responsibility and makes moving harder. Compare it with leasing over the time you plan to stay. Read should you buy or lease commercial property and how much commercial property costs in Northern Virginia.
Budget beyond the down payment
- Closing costs, loan fees and SBA guaranty fees.
- Appraisal, environmental, inspection and survey costs.
- Improvements needed to fit your business.
- Moving costs and cash reserves.
How Fred's Properties helps
We help business owners in Northern Virginia find owner-user buildings that fit SBA requirements, negotiate the purchase and coordinate with your lender, CDC and attorney. Browse properties for sale and current office buildings for sale in Northern Virginia.
This article is general information, not financial or legal advice. Confirm current SBA program terms with an SBA lender.
Next step
Thinking about buying your own building? Call Fred at 703-505-3501 or send us a message with the type of building, size and area you need.
Frequently asked questions
How much down payment do I need for an SBA 504 loan?
Commonly about 10% of the project cost. It can be higher for a new business or a special-purpose building.
Can I use an SBA loan to buy an investment property?
No. SBA real estate loans are for owner-occupied property. The business must occupy at least 51% of an existing building.
Can I lease part of the building to other tenants?
Yes, as long as your business meets the owner-occupancy requirement.
Which is better for real estate, 504 or 7(a)?
The 504 is designed for real estate and equipment and often offers a fixed rate on the CDC portion. The 7(a) is more flexible if you also need working capital or other financing. Ask your lender to compare both.
How long does SBA financing take?
Typically longer than a conventional loan because of the extra approvals and reports. Build that time into your purchase contract.
