Owning your business location builds equity and eliminates rent risk. Here's how small businesses finance commercial property purchases in 2025.
Owning your business's real estate transforms it from an ongoing expense into a long-term asset. Commercial real estate loans help small business owners purchase the buildings they operate in -- and in many cases, monthly loan payments are comparable to or lower than rent.
Types of Commercial Real Estate Loans
SBA 504 Loans
The SBA 504 loan program is specifically designed for commercial real estate and major equipment purchases. Structure:
- 10% down from the borrower
- 50% conventional first mortgage from a bank
- 40% from a Certified Development Company (CDC), backed by the SBA
Loan amounts up to $5 million (up to $5.5 million for certain energy projects). Repayment terms of 10, 20, or 25 years. Fixed-rate on the SBA portion makes payments predictable. The 10% down requirement makes SBA 504 extremely attractive for businesses that don't have 20%--30% to put down.
SBA 7(a) Loans for Real Estate
SBA 7(a) loans can also finance commercial real estate, with terms up to 25 years. More flexible than 504 in that they can combine real estate with working capital or equipment in a single loan. Best when you want to finance a mixed-purpose acquisition.
Conventional Commercial Real Estate Loans
Traditional bank loans for owner-occupied commercial real estate. Typically require:
- 20%--30% down payment
- Strong business financials (2+ years, DSCR 1.25+)
- 720+ credit score for best terms
- Terms of 10--20 years (often with balloon payment)
USDA Business & Industry Loans
For rural small businesses, the USDA B&I program offers guaranteed commercial real estate loans with very competitive terms. Up to $25 million for rural areas (under 50,000 population).
Qualifying for a Commercial Real Estate Loan
- DSCR: The property's income (or your business's ability to pay rent to itself) must cover the loan payment at 1.25x or higher
- Loan-to-value (LTV): Typically 65%--90% depending on product
- Credit score: 680+ for SBA; 720+ for conventional
- Business history: 2+ years preferred
- Owner-occupancy: SBA loans require at least 51% owner occupancy
Rent vs. Own: The Financial Case
For many businesses, owning beats renting over a 10-year horizon. Monthly SBA 504 payments are often similar to or lower than market rent, while the business builds equity. Additionally, property appreciation and the inflation hedge of fixed mortgage payments strengthen the case for ownership.
Use our loan calculator to compare ownership costs against your current rent. Approvd helps business owners explore commercial real estate financing options with no credit impact.
Frequently Asked Questions
How much do I need down for a commercial real estate loan?
SBA 504: as little as 10% down. SBA 7(a) for real estate: typically 10%--20%. Conventional: 20%--30% typically.
Can a startup buy commercial real estate?
Generally no -- most CRE lenders require 2+ years of business history. SBA 504 and 7(a) typically require established business cash flow to support the debt. Acquisitions with strong existing tenant income can sometimes overcome this.
Commercial Real Estate Loan Types Compared
| Loan Type | Max Amount | Typical Rate | Down Payment | Best For |
|---|---|---|---|---|
| SBA 504 | $5.5M+ | Fixed, below market | 10% | Owner-occupied CRE |
| SBA 7(a) | $5M | Variable, Prime+ | 10–15% | Multi-purpose (CRE + working capital) |
| Conventional Bank CRE | Varies | Fixed or variable | 20–30% | Strong businesses, investment CRE |
| USDA Business Loan | $25M | Below market | 10–20% | Rural area businesses |
Why SBA 504 is the Premier Small Business CRE Loan
The SBA 504 loan has a unique structure that makes it exceptionally powerful for owner-occupied commercial real estate. It involves two lenders: a bank provides 50% of the project cost, a Certified Development Company (CDC) provides 40% backed by the SBA, and you contribute just 10% as a down payment.
The SBA-backed 40% portion carries a fixed interest rate set monthly by the SBA — typically well below market rates — and terms of 20 or 25 years. This combination of low down payment, below-market fixed rate, and long term makes the 504 the lowest total cost CRE financing available to small businesses. The main limitation: the property must be at least 51% occupied by the borrower's business.
Renting vs. Buying: When Does Ownership Make Financial Sense?
The decision to buy versus rent commercial space involves more than comparing monthly payments. Key factors to analyze: current market lease rates vs. projected ownership costs (mortgage + taxes + insurance + maintenance), your business's stability and 10+ year location commitment, available capital for down payment, the property's appreciation potential, and the equity you'd build over time.
A common rule of thumb: if you can lock in a mortgage payment similar to or lower than current rent, and you plan to stay in the same location for 5+ years, ownership typically makes financial sense. The equity built and rate stability often outweigh the higher upfront capital requirements within 7–10 years.
Ready to explore CRE financing options?
Approvd works with SBA 504 lenders and conventional CRE lenders to find the best structure for your property purchase. Explore SBA real estate financing or use our loan calculator to estimate your purchasing power.