A building whose design or construction limits it to the use it was built for, such as a car wash, hotel, gas station or bowling alley.
SBA’s loan program rules define a limited or special purpose property as a limited-market property with a unique physical design, special construction materials, or a layout that restricts its utility to the use for which it was built. The SOP lists examples, including amusement parks, bowling alleys, car washes, funeral homes with crematoriums, gas stations, golf courses, hospitals, hotels and motels, marinas, nursing homes, theaters and wineries.
The label matters because the building is hard to resell or re-rent if the business closes. Fewer buyers means a lender expects to recover less, so it asks for more cash from the borrower. In the SBA 504 program the borrower contributes at least 15 percent of project cost on a special purpose property, and 20 percent when the business is also new. SBA also expects the appraiser to have experience with that industry.
A bank lending without SBA sets its own terms. Expect a lower loan-to-value than on a plain warehouse or office, and expect the lender to rely on the operating business’s cash flow more than on the real estate.
How it shows up in the data here
No public filing here marks a loan as special purpose. Bank call reports give one total for owner-occupied and one for non-owner-occupied commercial property, with no property type. To find lenders active in these deals, start with owner-occupied CRE lenders and each lender's SBA 504 history, then ask the lender directly about your property type.
Go further
- Owner-occupied CRE lenders: Most special purpose buildings are occupied by the business that owns them.
- SBA 504 structure calculator: See how the borrower's share changes with the property type.
- SBA 504 structure calculator: Bank loan, debenture and down payment for a project, and the fees that sit around them.
- LTV and LTC calculator: Loan to value and loan to cost, the equity a lender will ask for, and the federal supervisory limit for the property type.
- 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.
- Owner-occupied commercial real estate loan checklist: When a business borrows on the building it works in, the lender is underwriting the business first and the building second. The package has to prove both.
Related terms
- Owner-occupied commercial real estate: Commercial property where the loan is repaid mainly by the business that occupies it, not by rent from unrelated tenants.
- 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.
- Equity injection (SBA): The cash or other equity an owner puts into an SBA-financed project. A 7(a) start-up or business purchase needs at least 10 percent of total project cost; a 504 project needs 10, 15 or 20 percent.
- Appraisal: A written, independent opinion of a property's market value as of a specific date, prepared by a qualified appraiser.
- Loan-to-value ratio (LTV): The loan amount divided by the value of the property securing it. A $700,000 loan on a property valued at $1,000,000 is 70 percent loan to value.
Sources
Plain definitions for orientation, not legal, tax or credit advice. A lender's own policy decides what it will do.