Buying a building for your business: SBA 504 vs. conventional financing
By Francisco Williams, CCIM · CCIM · Executive Vice President, Williams Capital Advisors · CalDRE #01979442 · Updated
Short answer
An owner-user business can often buy its building with an SBA 504 loan, which typically splits financing between a bank first loan, a Certified Development Company second, and roughly 10% from the borrower, or with a conventional commercial loan. SBA 504 generally requires the business to occupy at least 51% of an existing building.
Why owners consider buying
Rent goes to someone else's equity. Owning can fix occupancy costs and build an asset, but it ties up capital and makes the business responsible for the building's capital needs. It's a decision about the business, not just the property.
SBA 504 in one paragraph
A typical structure is about 50% from a bank, about 40% from a CDC (SBA-backed), and about 10% down. Some cases (startups, special-purpose buildings) require more. Owner-occupancy rules apply: generally 51% of an existing building, or a higher share for new construction.
| SBA 504 | SBA 7(a) | Conventional | |
|---|---|---|---|
| Typical structure | ~50% bank first, ~40% CDC second, ~10% down | One SBA-guaranteed loan from a lender | One bank or credit-union loan |
| Down payment | Often ~10%; more for startups or special-purpose | Often ~10%+ | Often 20–30%+ |
| Uses | Real estate, major equipment | Real estate plus working capital, business purchase | Real estate |
| Owner occupancy | 51% of existing building; 60% for new construction | 51% of existing building | Lender's policy |
| Paperwork | Two lenders, SBA rules | SBA rules | Lender only |
Summary from SBA program descriptions; not a quote or commitment.
Conventional
Usually a larger down payment and shorter terms or rate resets, but fewer program rules and often faster execution.
504 vs. 7(a) vs. conventional
The three main routes differ in down payment, what they can finance and how much paperwork they take. The table summarizes the typical structure; lenders and the SBA set the actual terms.
Start with the property
WCA's capital markets team considers financing alongside the purchase, and current opportunities are on WCA listings.
Frequently asked questions
How much down do I need to buy a building with SBA 504?
Often around 10%, more for startups or special-purpose properties. The lenders confirm on each deal.
Do I have to occupy the building for SBA 504?
Generally the business must occupy at least 51% of an existing building.
Can I lease out part of the building?
Yes, within the occupancy limits of the program.
Sources
Lease vs. buy your business building: a 10-year comparison
A worked comparison of leasing and owning over ten years, the inputs that flip the answer, and the non-financial questions to ask first.
Reading a cap rate on a small commercial listing: adjust the NOI first
What a capitalization rate measures, how listing cap rates are built, and three questions to ask before trusting one.