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Business Owner Real Estate Financing

Updated: Jan 11

Business Mortgage Loan


Every business needs a place to conduct business. So the question is if you can own why rent? Most of small business operates in an office, warehouse, or storefront setting. You can purchase commercial real estate for your business while building equity and reducing costs.


In general, there are three options when comes to financing for business owner real estate purchases. As long as the business is using over 51% of the space, the lending industry accepts the loan request as owner-occupant.


The lending options are:

  1. Conventional commercial real estate loans: These are traditional loans that are provided by banks and other financial institutions. The terms and requirements for these loans vary depending on the lender, but typically involve a down payment, collateral, and a credit check.

  2. The SBA 7(a) loan program can be used to finance the purchase of commercial real estate for your business. The SBA 7(a) loan program is a popular option for small businesses.

  3. SBA 504 loans: These loans are provided by the Small Business Administration (SBA) and can be used to finance the purchase of commercial real estate. They typically require a smaller down payment than conventional loans and offer longer repayment terms.

Industry type includes the following:

  • Assisted Living Facilities: These are facilities that provide housing and personal care services for the elderly or individuals with disabilities.

  • Motels, Hotels, and Bed and Breakfast: These are businesses that provide lodging and accommodation services to travelers and guests.

  • Restaurant: A business that prepares and serves food and drinks to customers.

  • Nightclub and Bar: These businesses typically serve alcohol and may also offer live music or entertainment.

  • Retail stores: These are businesses that sell goods to consumers, typically in a physical storefront.

  • Business Services: These are businesses that offer services such as accounting, legal, consulting, and marketing to other businesses.

  • Office-based Companies: These are businesses that primarily operate in an office setting, such as law firms, marketing agencies, or financial institutions.

  • Auto repair shops: These are businesses that offer repair and maintenance services for automobiles.

  • Auto and RV dealership: These are businesses that sell new and used automobiles or recreational vehicles to consumers.

  • Car wash facilities: These are businesses that provide car washing and detailing services to customers.

  • Childcare and Preschool: These are businesses that provide care and education services to young children.

  • Self-storage facilities: These are businesses that provide storage space for personal or commercial use.

  • Gas station or convenience store: These are businesses that sell gasoline, convenience items, and sometimes food and drinks to customers.

  • Importer and wholesaler: These are businesses that import goods from other countries and sell them to retailers or other

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Bank conventional loans are a common type of commercial real estate loan offered by banks and traditional lending institutions. These loans are typically used to finance the purchase or refinance of commercial real estate properties.

The maximum loan amount for a bank conventional loan is typically around 80% of the property value. However, some banks may only lend to business operators and not to investment type clients. In these cases, the bank may require the business operator to deposit their business activity in exchange for the loan.

The down payment required for a bank conventional loan is typically around 20% of the property value, and the loan term is typically fixed for five to ten years, amortized over 20 to 25 years. Interest rates for bank conventional loans tend to be low, starting at the prime rate plus 1%.

It's important to note that not all banks are the same and some may have different lending criteria. Some banks may only lend up to 65 to 70% of the property value, while others may be willing to lend up to 80% or more. It's important to shop around and compare different loan options to find the best fit for your business needs.


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The SBA 7(a) loan program can be a good option for borrowers who are purchasing a business that includes both real estate and business value or who need additional financing for working capital, renovations, or equipment.

Under the SBA 7(a) program, borrowers can roll all of these expenses into one loan, making it easier to manage their financing needs. The maximum loan amount for an SBA 7(a) loan is $5 million, and the loan can cover up to 85% of the property value, meaning that the borrower's down payment would be around 15% of the purchase price.

The terms for an SBA 7(a) loan can last as long as 25 years, which can help borrowers manage their monthly payments and make it easier to plan for the future. Additionally, SBA loans often have more flexible credit requirements than traditional bank loans, making them a good fit for startups or businesses with less-established credit histories.

One of the main disadvantages of an SBA 7(a) loan with a floating rate is the uncertainty of future interest rates. A floating rate, also known as an adjustable rate, means that the interest rate can change over the life of the loan, typically based on a benchmark index such as the prime rate.


This can be risky for borrowers, as an increase in interest rates could lead to higher monthly payments and potentially make it more difficult to meet their financial obligations. Additionally, it can be harder to plan and budget for future expenses when the interest rate is uncertain.

Another potential disadvantage of an SBA 7(a) loan with a floating rate is that it may not be as attractive to lenders as a fixed-rate loan. This is because a floating rate loan carries more risk for the lender, as they are exposed to fluctuations in the interest rate. As a result, lenders may charge higher fees or require additional collateral to offset this risk.

Overall, while an SBA 7(a) loan with a floating rate may offer lower initial interest rates, it's important for borrowers to carefully consider the potential risks and uncertainties before choosing this option. They may want to consult with a financial advisor or accountant to help evaluate the pros and cons of different loan options and make the best decision for their business.


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The SBA 504 CDC loan program offers long-term, fixed-rate financing for major fixed assets such as land, buildings, and equipment. It can be a great option for borrowers who want to finance a large project and lock in a low interest rate for a long period of time. The loan requires multiple lending partners, with the CDC providing up to 40% of the project cost and the conventional bank lender providing up to 50%. The borrower is typically required to contribute 10% equity, which can be a combination of cash, equity in the project, or other assets. The CDC loan portion is typically offered at a fixed rate over a 20 or 25-year term, while the conventional bank lender provides a shorter-term loan with a variable interest rate that is typically based on the prime rate plus a margin. The rate on the CDC portion is often very competitive, making it an attractive option for borrowers.



One potential downside of the SBA 504 CDC loan program is the requirement for two closings, which can result in higher legal and administrative costs. The bank lender typically closes on their portion of the loan first, followed by the debenture process with the CDC. This can add time and complexity to the loan process, but for many borrowers, the benefits of the long-term fixed-rate financing may outweigh the additional costs.


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