What is the SBA owner-occupancy test for CRE financing?

Owner-occupancy mechanics under SBA SOP 50 10

Existing building rule: the operating business must occupy at least 51% of the rentable square footage of an existing building from loan closing forward. The remaining 49% can be leased to third-party tenants, the SBA explicitly permits this rental income as part of the project.

New construction rule: the operating business must occupy at least 60% of the building at closing. Within 10 years, the operating business must expand to at least 80% occupancy. The interim 40% can be leased to third parties; the long-term 20% can be permanently leased.

Special-purpose property: hotels, gas stations, car washes, and similar special-purpose facilities are typically 100% owner-occupied. They face a 15% (vs. 10%) sponsor equity requirement and a different appraisal standard.

Affiliate occupancy: an affiliate of the operating business (entities under common control) typically counts toward the occupancy threshold. SBA SOP 50 10 defines affiliation tightly; sponsor's counsel should confirm the structure pre-application.

Compliance over time: if the operating business shrinks and occupancy falls below 51% during the loan tenor, the lender must report and SBA may declare non-compliance. Practical remedies include backfilling space with affiliate tenants or refinancing into a non-SBA structure.

Documentation at closing: occupancy is documented through a square-footage measurement, the lease between the real estate holding entity and the operating business, and the sponsor's certification. Lenders require updated documentation if material space changes occur.