At some point, many business owners look at their monthly rent check and ask a simple question: why am I paying for someone else’s building?
Buying your own space can lock in your occupancy costs, build equity, and give you full control over your location. The financing behind that move is called an owner-occupied commercial real estate loan. Here’s how these loans work, what lenders look for, and how the SBA 504 loan fits in.
What Is an Owner-Occupied Commercial Real Estate Loan?
An owner-occupied commercial real estate loan is financing used to buy, build, or refinance a property that your business will operate out of. That’s different from an investment property loan, where the building is leased out to other tenants for income.
Lenders generally view owner-occupied loans as lower risk than investment property loans. Your business is the tenant, so the property’s success is tied directly to the success of the company inside it. That often translates into better terms for the borrower.
Common uses include:
- Buying an existing building for your business
- Constructing a new facility
- Purchasing land and building on it
- Renovating or expanding a building you already own
- Refinancing an existing commercial mortgage
How Much of the Building Do You Have to Occupy?
To qualify as owner-occupied, your business needs to use a meaningful share of the building. The exact threshold depends on the loan program.
For SBA 504 loans:
- Existing buildings: Your business must occupy at least 51% of the property
- New construction: Your business must occupy at least 60% right away, with plans to occupy 80% over time
The rest of the space can be leased to other tenants. That can be a great way to offset your mortgage payment while leaving room for your business to grow into the building later.
Conventional lenders often use a similar 51% benchmark, but requirements vary from bank to bank.
Your Main Loan Options
Conventional bank loans
A traditional commercial mortgage from a bank or credit union. These loans often require a larger down payment, commonly in the 20% to 30% range, and may come with shorter terms or a balloon payment that has to be refinanced down the road.
SBA 504 loans
The SBA 504 program was built specifically for owner-occupied real estate and major fixed assets. It’s designed to help small businesses buy property with a lower down payment and long-term fixed rates.
SBA 7(a) loans
The 7(a) program is the SBA’s general-purpose loan. It can be used for real estate, but it’s also used for working capital, equipment, and business acquisitions. For a side-by-side look, read our guide on SBA 504 vs SBA 7(a).
How the SBA 504 Loan Is Structured
What makes the 504 loan different is that it splits financing among three parties:
| Portion | Source | Typical Share |
|---|---|---|
| First mortgage | Bank or credit union | 50% |
| Second mortgage | Certified Development Company (CDC) backed by the SBA | 40% |
| Down payment | Your business | 10% |
The down payment can rise to 15% for startups or special-purpose properties, or 20% if both apply.
The CDC portion carries a fixed rate for 10, 20, or 25 years, so a big part of your financing is protected from rate swings over the life of the loan.
Why Business Owners Choose the 504 for Owner-Occupied Property
- Lower down payment. Putting 10% down instead of 25% or more keeps cash in your business for payroll, inventory, and growth.
- Long-term fixed rates. The CDC portion locks in your rate for up to 25 years, making your occupancy costs predictable.
- No balloon on the SBA portion. The CDC loan fully amortizes over its term.
- Room to grow. You can lease out unused space now and expand into it later.
Who Qualifies?
SBA 504 loans are available to for-profit businesses that meet SBA size standards. One common test is a tangible net worth under $20 million and average net income under $6.5 million after taxes over the previous two years.
Lenders will also look at:
- Business cash flow and ability to repay
- Time in business and industry experience
- Personal and business credit history
- The property itself and its appraised value
You can learn more about credit expectations in our post on SBA loan credit score requirements.
Run the Numbers on Your Building
Before you start touring properties, it helps to know what your payment could look like. Our SBA 504 loan calculator uses current rates so you can estimate your monthly costs and compare them to what you’re paying in rent today.
Talk With a Utah 504 Lending Team
Intermountain Business Lending helps Utah business owners use the SBA 504 program to buy, build, and refinance the buildings they operate in. We work alongside your bank to structure the deal and walk you through every step.
Contact our team to talk about your project.