If your business will occupy the building, you can typically buy commercial real estate with about 10% down through an SBA 504 loan at a long-term fixed rate — currently in the rough range of 6.5 to 7.5% — or with 20 to 30% down through a conventional commercial mortgage. The single biggest fork in the road is the owner-occupancy rule: SBA programs require your business to occupy at least 51% of the property. Investment property is a different world entirely, and the SBA doesn't play in it.
The Three Paths, Side by Side
| Factor | SBA 504 | SBA 7(a) | Conventional |
|---|---|---|---|
| Down payment | 10% (15% special-purpose or startup; 20% if both) | ~10%+ | 20 to 30% |
| Rate | ~6.5 to 7.5% fixed on the CDC portion | ~9 to 11.5% variable (prime + spread) | Varies; typically between the two |
| Term | 20 to 25 years | Up to 25 years | 5 to 20 years, often with balloon |
| Best for | Pure real estate or major equipment | Real estate mixed with other uses | Strong borrowers who value speed and no SBA fees |
How a 504 Is Actually Structured
A 504 isn't one loan — it's two. A bank lends roughly 50% of the project in first position at its own rate; a Certified Development Company (CDC) funds about 40% in second position at a fixed rate tied to the 10-year Treasury; you bring the remaining ~10%. The CDC portion's fixed rate for the full 20 to 25 years is the program's superpower: no rate risk on nearly half the deal, for the life of the deal. The price is complexity — two closings' worth of paperwork and a timeline that runs 60 to 90 days on a good day.
When 7(a) Wins Instead
If the purchase is part of a bigger move — buying the building and renovating it, buying the business inside it, or rolling in working capital — the 7(a) can wrap everything into one loan, which the 504 can't. You'll pay a variable rate (currently ~9 to 11.5%) for that flexibility. For projects over roughly $1M that are purely real estate, the 504's fixed-rate math almost always wins on total interest; under that, the structural overhead often isn't worth it.
What Underwriters Actually Check
Commercial real estate underwriting runs two tests at once. The property has to carry itself — lenders want the building's economics to make sense at appraisal — and your business has to carry the payment, which means DSCR around 1.25x on the new debt. You'll also see steps that don't exist in other lending: a commercial appraisal (weeks, not days), an environmental review (a Phase I report on anything with an industrial past), and scrutiny of the lease structure if other tenants occupy your non-51% share. Budget 60 to 90 days from offer to keys, and get the financing conversation started before you're in contract — sellers take SBA offers more seriously when a lender's term sheet is already attached.
A detail that surprises owners: rent replacement math usually favors buying earlier than people think. If your rent is within striking distance of a 504 payment, you're trading an expense that rises every renewal for a fixed payment that builds equity — and lenders underwrite that swap favorably, because the payment replaces an obligation you've already proven you can carry.
Frequently Asked Questions
Through an SBA 504 or 7(a), typically about 10% if the business occupies at least 51% of the property — rising to 15% for special-purpose buildings or startups, and 20% if both. Conventional commercial mortgages run 20 to 30% down.
SBA real estate financing requires your operating business to occupy at least 51% of an existing building (60% of new construction). Below that threshold the property is treated as investment real estate, which SBA programs don't finance.
If the project is purely real estate (or major equipment), the 504's long-term fixed rate on the CDC portion usually wins on total cost. If you need to combine the purchase with renovation, working capital, or a business acquisition, only the 7(a) can wrap it all into one loan.