The 51 percent rule, the SBA path to 10 percent down, and why owner-occupants get the best terms in commercial lending.
A property counts as owner-occupied when your operating business uses at least 51 percent of the space. Hit that line and a different, better menu of financing opens: SBA 504 and 7(a) programs, bank owner-occupied programs, and credit unions that only lend to occupants. Below it, the loan is investment property financing, sized on rents and priced accordingly.
An owner-occupant brings two income streams to the same deal: the building and the business inside it. Lenders underwrite the business revenue and history alongside the real estate, which supports a larger loan and longer amortization than a pure investment deal. It is the closest commercial lending comes to the terms homeowners take for granted.
SBA 504 pairs a bank first loan with a CDC second and commonly finances 90 percent of the total project, including some soft costs. SBA 7(a) can reach similar totals with more flexibility, such as buying the building and financing equipment in one loan. Both look through the entity to the business and its owners, which is why a newly formed LLC is no obstacle. The trade is process: SBA closings run longer, and when a purchase deadline will not wait, a bridge loan can close first with the SBA takeout behind it, the exact structure in a deal we closed in under three weeks.
Owning wins when the payment on 90 percent financing is close to your rent, when the location is worth committing to, and when you would rather build equity than fund your landlord's. Renting wins when the business is likely to outgrow or relocate soon, or when the down payment has a better use inside the company. Run the numbers with our calculators before the emotion of ownership makes the call for you.
Two to three years of business financials, a current personal financial statement for each owner, and the property details. From there, a deal brief gets you a straight answer within one business day on which path fits.
Most commercial lenders want a minimum of 1.20 to 1.25, meaning the property produces 20 to 25 percent more income than its annual debt payments. Stronger ratios earn better terms; below 1.0 the property does not cover its own payment.
Divide net operating income by annual debt service. A property with $200,000 of NOI and $127,220 of annual loan payments has a DSCR of 1.57.
Usually not from a bank, because the property does not cover its payment. Interest-only bridge financing can carry a transitional property while income is built to a level conventional lenders will finance.
Yes, substantially. Removing principal from the payment lowers annual debt service, which is why bridge lenders quote interest-only and why the same NOI supports a much larger interest-only loan.
Send the property, the loan amount, and your timeline. We will tell you whether it looks like something we can help with, usually within one business day.
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