SBA 504 Loan Owner-Occupied Requirements

If you run a business and you’re tired of paying rent forever, an SBA 504 loan can be one of the most practical ways to buy an owner-occupied building in Texas.

It’s built for business owners who want to own the real estate their company operates from—think contractors, medical practices, manufacturers, logistics companies, auto/service businesses, and many retail operators.

Below is the plain-English guide: who qualifies, why 504 is popular, the key rules, and the pitfalls that blow up deals.

What is an SBA 504 loan?

The SBA 504 program provides long-term financing for major fixed assets (like commercial real estate) through Certified Development Companies (CDCs)—nonprofit SBA partners that help fund economic development projects.

A few key realities:

Why it’s Popular for Owner-Users

Owner-users love SBA 504 because it often means:

• Lower down payment than many conventional CRE deals (often around 10% in standard scenarios)

• Long amortization (commonly 20–25 years on real estate) which can help cash flow

• A structure built specifically for buying/renovating/constructing facilities your business will occupy

The Basic 504 Structure (How the Money Usually Stacks)

Most 504 projects are structured as:

• Bank / lender: typically first lien (often ~50%)

That “50 / 40 / 10” structure is widely described in industry materials and federal banking guidance.

Who Qualifies (High Level)

1) It must be a for-profit operating business (not a passive real estate play)

The program is not meant for buying investment property where you’re mainly collecting rent. 

2) You must be an owner-occupant (occupancy rules matter)

Common occupancy requirements:

• New construction: business must occupy at least 60% initially (with expectations to grow into more space over time)

These thresholds are commonly stated in federal banking guidance and CDC/504 occupancy summaries.

3) Business size / “small business” financial thresholds apply

A commonly cited benchmark is tangible net worth and net income limits (often referenced as $15M net worth and $5M average net income), though these thresholds can change over time and the SBA also uses industry size standards.

4) Economic development purpose

The 504 program is designed to promote economic development—job creation/retention and/or public policy goals are part of how projects are justified and tracked.

What You Can Use a 504 Loan For

Typical eligible uses include:

• Purchase of land and land improvements (parking lots, utilities, grading)

• Construction of new facilities

• Renovation/modernization of existing facilities

• Purchase of long-life equipment (often 10+ year useful life)

This is consistent with SBA’s “fixed assets” focus and how CDCs describe eligible projects.

Refinancing can also be possible under specific conditions (rules get detailed fast), and it’s governed by SBA regulations.

Common Pitfalls (Where Deals Go Sideways)

Pitfall #1: Trying to use 504 for an “investment property”

If the property is primarily a rental/investment play, you’re likely outside the program’s intent. There are structures like an Eligible Passive Company that can own the real estate, but the project still needs to be fundamentally owner-occupied and structured correctly.

Pitfall #2: Occupancy math that doesn’t work

If you can’t meet the 51% / 60% occupancy rules based on your real space plan, the deal can stall late in the process.

Pitfall #3: “We’ll just rent out the extra space and use that income to qualify”

Some lenders will underwrite the business expecting it can service debt from operations without relying heavily on third-party rent (especially if you’re close to the minimum occupancy). This is a frequent friction point in 504 underwriting.

Pitfall #4: Underestimating timeline and documentation

504 is a two-lender structure (bank + CDC/SBA debenture), and it’s paperwork-heavy. If you need a 10-day close, this probably isn’t your tool.

Pitfall #5: Special-purpose buildings and startups = higher cash in

Many 504 deals are around 10% down, but certain situations (newer businesses, special-purpose properties) can require more borrower injection. 

A Simple “Should I Consider 504?” Checklist

You’re a strong fit for SBA 504 if:

• You’re buying a building your company will operate from
• You can meet the occupancy requirement (51% existing / 60% new)
• You want longer-term stability vs. renewing leases every 3–5 years
• You’re okay with a more involved closing process in exchange for structure and terms

Texas-specific note (how this works locally)

The rules are federal, but the execution is local: Texas has SBA-certified CDCs that can help coordinate the SBA debenture side, and the SBA maintains a public directory of CDCs. 

Wrap-up

An SBA 504 loan is one of the most common “graduation moves” for growing Texas businesses: buy the building, stabilize occupancy costs, and build equity while you operate.

If you’re exploring options, the two biggest “make-or-break” items are:

If you’re considering a purchase this year, CIP Texas can help you evaluate properties for 504 fit, sanity-check the occupancy plan, and coordinate the deal team (lender, CDC, title, and due diligence) so you don’t lose time—or the building—mid-process. Reach out to CIP to talk through your target area, budget, and space needs.

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