SBA Loans for Commercial Property: 7(a), 504 and Microloans

The U.S. Small Business Administration (SBA) does not usually lend money itself. It guarantees part of loans that banks and other approved lenders make to small businesses, which lets those lenders accept deals they might otherwise turn down. Two of its programs, 7(a) and 504, can pay for buying, building or renovating commercial property.

This article is for U.S. business owners who want to buy or improve a building their own business will use, including hotel operators. SBA loans are a U.S. program only. Canadian owners will find the nearest equivalent at the end.

The rule that decides everything: you must occupy the property

SBA financing is for operating businesses, not for landlords. The regulations list “passive businesses owned by developers and landlords that do not actively use or occupy the assets acquired or improved with the loan proceeds” among the businesses that are not eligible.[1] The 504 program says the same thing in plainer words: its loans cannot be used for “speculation or investment in rental real estate.”[3]

The occupancy thresholds are set out in the regulations:[2]

• Existing building: your business must permanently occupy and use at least 51% of the rentable space. You may lease out up to 49%.
• New construction: your business must occupy at least 60% straight away, may lease up to 20% long term, and must plan to take over the rest over time (some of it within three years and all of it within ten).

Hotels are the main exception

Hotels earn money from guests, not tenants, so the SBA treats them as operating businesses under a specific test. Hotels, motels, RV parks, marinas, campgrounds and similar businesses are eligible if more than 50% of the previous year’s revenue came from guests staying 30 days or less at a time, and the business complies with zoning and other legal requirements. A new hotel must show the same split in its projections.[5]

The same procedures tell lenders to review hotel management agreements, because handing control of the business to a third-party manager can make the owner an ineligible passive business.[5] If you plan to use a management company, raise this with the lender early.

The three programs compared

SBA programs and commercial property (United States)

Item	7(a) loan	504 loan	Microloan
Maximum amount	$5 million	$5 million SBA portion for most projects; $5.5 million for some, such as small manufacturers	$50,000
Can buy real estate?	Yes: acquiring, refinancing or improving real estate and buildings	Yes: buying, building or renovating buildings or land	No
Other uses	Working capital, equipment, refinancing business debt, changes of ownership	Long-life machinery and equipment; some debt refinancing	Working capital, inventory, supplies, furniture, equipment
Who makes the loan	Bank or other SBA lender	A bank plus a Certified Development Company (CDC)	Nonprofit intermediary lender
Term	Varies by use	10, 20 or 25 years, fixed rate	Up to 7 years

The figures come from the SBA’s program pages and the regulations.[10][3][4][6][7] The SBA’s own 504 page gives the headline as “up to $5 million” and the maximum as $5.5 million; the regulation explains the difference: $5 million per borrower in general, and $5.5 million per project for small manufacturers and certain energy-saving projects.[6]

How a 504 loan is put together

A 504 project has three layers of money. A conventional lender (the “third party lender”) provides a first mortgage that must be at least as large as the 504 portion. A Certified Development Company provides the 504 portion, backed by the SBA. The borrower puts in equity.[8]

Your minimum cash contribution on a 504 project

1. At least 10% in most cases

   For an established business buying or building a general-purpose property.

2. At least 15% for a newer business

   If the business has operated for two years or less.

3. At least 15% for a special-purpose building

   If the project is a limited or single-purpose building.

4. At least 20% if both apply

   A business under two years old buying or building a special-purpose building.

These percentages are from 13 CFR 120.910 and are calculated on the project cost, excluding administrative costs. The contribution can be cash or land that is part of the project.[8] Whether a particular hotel counts as a “limited or single purpose” building is a question for the CDC.

The 504 interest rate is pegged to the 10-year U.S. Treasury rate, and fees total about 3% of the debt, which may be financed into the loan.[3]

Microloans cannot buy property

Some articles suggest stacking SBA microloans to buy real estate. That does not work. The SBA says plainly that microloan proceeds “cannot be used to pay existing debts or to purchase real estate,” and no borrower can owe one intermediary more than $50,000 at a time.[4][7] A microloan can help a small hotel or other business with equipment, furniture or working capital, but not with the building.

What lenders will look at

Before you approach an SBA lender

1. Confirm your business is eligible

   It must be a for-profit operating business, located in the U.S., small under SBA size standards, and not on the list of ineligible businesses.

2. Check the occupancy split

   Measure the rentable space you will use yourself against what you plan to lease. For a hotel, check that most revenue comes from stays of 30 days or less.

3. Prepare a business plan and financial statements

   Lenders assess management experience, a feasible plan and ability to repay, as well as character and credit.

4. Choose 7(a) or 504

   504 is limited to fixed assets and needs a CDC; 7(a) is more flexible and can include working capital and changes of ownership.

5. Find the right lender

   504 loans are available only through Certified Development Companies, which work with a bank on the first mortgage.

The eligibility points in the list are from the SBA’s 504 program page, which also lists qualified management expertise, a feasible business plan, good character and the ability to repay.[3]

The Canadian equivalent

Canada has no SBA. The closest program is the federal Canada Small Business Financing Program (CSBFP), in which the government shares the risk of loans that banks and credit unions make to small businesses. Businesses with gross annual revenue of $10 million or less can borrow up to $1.15 million in total, of which up to $1 million can be term loans; real property is one of the eligible uses.[9] It is a much smaller program than SBA 504, and like the SBA programs it is for businesses using the property, not for investors buying rental buildings.

Programs aimed at apartment buildings and other rental housing in Canada are covered in our article on government incentives for hotel and apartment projects. For other routes when a bank says no, see our overview of financing hard-to-finance property.

Sources

1. 13 CFR 120.110: What businesses are ineligible for SBA business loans? — Electronic Code of Federal Regulations (eCFR). Checked 2026-10-12.
2. 13 CFR 120.131: Leasing part of new construction or existing building to another business — Electronic Code of Federal Regulations (eCFR). Checked 2026-10-12.
3. 504 loans — U.S. Small Business Administration. Checked 2026-10-12.
4. Microloans — U.S. Small Business Administration. Checked 2026-10-12.
5. SOP 50 10 8: Lender and Development Company Loan Programs (copy hosted by the Coleman Report) — U.S. Small Business Administration, Effective June 1, 2025. Checked 2026-10-12.
6. 13 CFR 120.931: 504 Lending limits — Electronic Code of Federal Regulations (eCFR). Checked 2026-10-12.
7. 13 CFR 120.707: What conditions apply to loans by Intermediaries to Microloan borrowers? — Electronic Code of Federal Regulations (eCFR). Checked 2026-10-12.
8. 13 CFR 120.910 and 120.920: Borrower contribution and required participation by the Third Party Lender — Electronic Code of Federal Regulations (eCFR). Checked 2026-10-12.
9. Helping small businesses get loans — Innovation, Science and Economic Development Canada (Canada Small Business Financing Program). Checked 2026-10-12.
10. 7(a) loans — U.S. Small Business Administration. Checked 2026-10-12.