SBA commercial real estate loans: 7(a) vs 504

What is an SBA commercial real estate loan?

An SBA commercial real estate loan finances property your own business operates from, such as an office, a warehouse, a clinic, a restaurant or a hotel. It isn’t a separate SBA program. Owners use one of two programs, or both together:

• SBA 7(a) loans, made by a bank or other lender and partly guaranteed by the SBA.
• SBA 504 loans, which pair a bank loan with a fixed-rate loan from a Certified Development Company (CDC), backed by the SBA.

Either program can pay for:

• Buying an existing building, or land to build on
• New construction, expansions and renovations
• Site improvements such as parking, utilities and landscaping
• Eligible closing costs and fees
• Refinancing a mortgage on a building you already occupy (see SBA debt refinancing)

Compared with a conventional commercial mortgage, an SBA loan usually needs less money down and gives you longer to repay, which keeps monthly payments lower.

Who qualifies for an SBA commercial real estate loan?

The key test is occupancy: the property has to house your business, not tenants you collect rent from.

Definition

Owner-occupied:

Your business occupies at least 51% of an existing building’s rentable space, or at least 60% of a newly built one.

You can lease out the rest. With new construction, only part of the remaining space can be leased permanently; the rest is meant for your business to grow into. Buying property mainly to rent to others is passive real estate investment, which neither program finances.

The business itself also has to:

1. Operate for profit in the United States and meet the SBA’s size standards for its industry.
2. Meet the citizenship rule. Since March 1, 2026, all owners must be U.S. citizens or nationals.
3. Show it can afford the payments from business cash flow, based on tax returns and financial statements.
4. Have owners of 20% or more personally guarantee the loan.

Many owners hold the building in a separate real estate company that leases it to the operating business. The SBA allows this setup, with the operating business joining the loan as a co-borrower or guarantor.

Should you use a 7(a) or 504 loan for commercial real estate?

Both programs finance owner-occupied property. The better fit depends on the size of the project, how much cash you have and whether you need more than the building.

Feature	SBA 7(a)	SBA 504
Program limit	$5 million loan	$5 million CDC debenture ($5.5 million for small manufacturers and energy projects), plus the bank loan
Minimum down payment	Set by the lender; at least 10% for start-ups and business purchases	10%; 15% to 20% for new businesses or special-purpose property
Interest rate	Variable or fixed, within SBA caps (variable: Prime + 3% to 6.5%)	Fixed on the CDC portion; the bank sets the rate on its portion
Real estate term	Up to 25 years, plus construction	Up to 25 years on the CDC portion
Can also pay for	Equipment, working capital, inventory or a business purchase	Fixed assets only, such as real estate and long-lived equipment

A 504 loan usually suits larger purchases and construction projects, where a fixed rate on a big balance and a smaller down payment matter most. A 7(a) loan suits owners who want the building, equipment and working capital in a single loan, or a smaller property with one lender handling everything.

Since July 4, 2026, a business can combine 7(a) and 504 financing for up to $10 million in total. How much you can borrow also depends on the property’s appraised value and whether your cash flow covers the payments.

How much down payment do you need for commercial real estate?

For a 504 loan, the SBA sets your minimum contribution:

• 10% for an established business buying a general-purpose building
• 15% for a new business (operating 2 years or less) or a special-purpose property
• 20% when both apply

A special-purpose property is built for one kind of business and would be hard to convert to another use. Hotels, gas stations and daycare centers often fall into this group; see our pages on hotel loans, gas station loans and daycare loans.

For a 7(a) loan, the lender sets the down payment for an established business. Start-ups and business purchases need an equity injection of at least 10%; see SBA startup loans and business acquisition loans.

How long are SBA commercial real estate loan terms?

Real estate gets the longest terms the SBA allows:

• 7(a): up to 25 years, plus the construction period. If the same loan also covers equipment or working capital, the lender blends the terms into one.
• 504: the CDC portion is repaid over up to 25 years at a fixed rate. The bank sets the term on its portion, within SBA minimums.

A longer term lowers the monthly payment, which is often what makes a property purchase work for cash flow. You can compare payments with the SBA loan calculator.

Can you use an SBA loan to build or renovate?

Yes. Both programs finance ground-up construction, expansions and major renovations, including buying the land for a building you’ll occupy. Construction projects need more preparation:

1. Plans and a detailed budget, usually with a contingency for overruns.
2. A qualified general contractor and a signed construction contract.
3. Owner occupancy of at least 60% once the building is complete.
4. Interim financing on 504 projects. The bank funds construction, and the CDC’s debenture pays down part of that loan after the project is finished.

During construction, lenders pay out funds in stages as work is inspected, so you typically pay interest only on what has been drawn.

What are the closing costs for an SBA commercial real estate loan?

Expect two kinds of costs: SBA program fees and third-party reports on the property.

Program fees. A 7(a) loan has an upfront SBA guaranty fee that depends on the loan size, and most borrowers finance it into the loan; see the current 7(a) fees. A 504 loan has an upfront fee of 0.50% on the debenture, which some manufacturers, food-supply-chain and rural businesses don’t pay, plus an annual fee of 0.203% on the debenture balance that’s built into your payment.

Third-party reports. Lenders typically require:

• An appraisal from an independent appraiser to confirm the property’s value
• An environmental review, which can range from a questionnaire to a full site assessment depending on how the property has been used. Gas stations, dry cleaners and industrial sites usually get a closer look.
• Title insurance, a survey and property insurance
• Construction inspections, if you’re building or renovating

You usually pay for these reports, and they can take several weeks, so ask the lender to order them early.

How do you find the right lender for commercial real estate?

Lenders and CDCs differ a lot in the property types, loan sizes and states they finance. One that regularly funds buildings like yours already knows how to value them, which usually means fewer surprises in underwriting.

SBA Loan Connect ranks lenders using the SBA’s public 7(a) and 504 loan records, so you can see which lenders actually fund projects like yours before you apply. Partner lenders are labeled. See how we rank lenders.