An owner-user occupies at least 51% of the building. Three main financing tracks exist: SBA 504 (long-term fixed rate via CDC debenture, 10% equity on a standard project), SBA 7(a) (single-loan flexibility, partial guarantee), and conventional bank (faster execution, more recourse ). Decision turns on loan size, occupancy ratio, and tenor.
Owner-user financing decision tree
Define owner-user: per SBA SOP 50 10, the operating business must occupy at least 51% of an existing building (60% on new construction, ramping to 80%). The operating business is the borrower; the real estate is held in a related single-purpose entity that takes the loan and leases to the operating company.
SBA 504 is the workhorse for owner-user real estate from $500K to about $12.5 million. Structure is two loans: a 50% LTV bank first mortgage at market rate plus a 40% LTV CDC debenture at long-term fixed rate, with 10% sponsor down payment. The debenture portion locks in 25-year fixed at sub-conventional rates because of SBA backing.
Conventional bank financing is the path for owner-user borrowers who don't want SBA process timelines, are above the SBA 504 limit, or prefer fixed rate without the CDC structure. Typical structure: 5-year or 10-year balloon, 20-25 year amortization, 70%-75% LTV, full recourse.
Decision factors: deal size (under $5 million often favors 7(a), a standard 504 project tops out around $12.5 million, and larger projects favor conventional), tenor preference (504 wins on long-term fixed, conventional offers shorter rate-reset structures), recourse appetite (504 and 7(a) require personal guaranties of 20%+ owners), and process timeline (conventional 60-90 days, SBA 90-120 days).
Sources
- 504 Loan Program · U.S. Small Business Administration · current
- 7(a) Loan Program · U.S. Small Business Administration · current
- SOP 50 10: Lender and Development Company Loan Programs · U.S. Small Business Administration · 2024