SBA 504 financing is designed for owner-occupied commercial real estate (and equipment). However, leasing a portion of the commercial space is allowed. To be eligible, the borrower must meet SBA’s requirements below:
For New Construction
Borrower or operating company needs to occupy 60% of their newly constructed building at the time of closing, with plans to occupy another 20% within 3 years. Borrower may lease up to 20% of the property long term to third parties.
For Existing Buildings
Borrower or operating company needs to occupy 51% of their existing building and 100% of the renovated property at the time of closing.
SBA 504 is used to directly assist small businesses, which is the reason for SBA’s distinct leasing guidelines. These requirements basically eliminate using SBA 504 to finance strip malls, as they are typically not owner-occupied. Condominium units are becoming more popular and would be eligible under this program.