The rule that a business using SBA money on real estate must occupy at least 51 percent of an existing building, or 60 percent of a new one, and may lease out the rest within set limits.
When proceeds buy or improve real estate, or refinance debt secured by it, the business must occupy at least 51 percent of the rentable property in an existing building and may lease up to 49 percent. For new construction it must occupy 60 percent, may lease up to 20 percent permanently, and may lease another 20 percent temporarily if it plans to use some of that space within three years and all of it within ten.
Rentable property is the total square footage used for business operations, leaving out stairways, elevators and mechanical areas, and counting common areas and exterior space in active use, but not parking. If an eligible passive company owns the building, it must lease 100 percent to the operating company, which then follows the same percentages.
The lender may allow up to a year after closing to meet the share, for example while a tenant’s lease runs out. A 504 closing package cannot go in if the borrower will not be occupying, unless SBA agreed in writing in advance. Proceeds cannot improve space that will be subleased. Example: an existing 20,000-square-foot building requires the business to occupy at least 10,200 square feet, and it may lease up to 9,800.
How it shows up in the data here
Not in the SBA loan file, which has no square footage or occupancy field. The lender and SBA test occupancy at the loan, from leases and floor area, and the result is not published. Ask the lender how it will document occupancy.
Go further
- Package checklist: SBA 504 loan: Where occupancy sits in the 504 package.
- SBA 7(a) loan package checklist: A 7(a) package is the bank's usual file plus SBA's own list. Know which items SBA requires and you can have them ready before the first call.
- SBA 504 loan package checklist: A 504 project has three parties, two loans and a closing date set by a monthly bond sale. Build the package for all three.
Related terms
- Eligible passive company (EPC): A separate company that owns the real estate or equipment and leases all of it to the operating business, allowed under SBA rules when strict conditions are met.
- SBA 504 loan: A fixed-asset financing in which a bank lends 50 percent or more, a certified development company funds up to 40 percent through an SBA debenture, and the borrower puts in at least 10 percent.
- SBA 7(a) loan: SBA's main business loan program. A lender makes the loan and SBA guarantees part of it: up to 85 percent of $150,000 or less and 75 percent of more, on loans up to $5,000,000.
- SBA collateral requirements (7(a)): SBA's rules for what a 7(a) lender must take as collateral and how each asset counts, such as improved real estate at 85 percent of value. A request must not be declined only for thin collateral.
Sources
Plain definitions for orientation, not legal, tax or credit advice. A lender's own policy decides what it will do.