SBA Loans: A Broker’s Guide to 7(a) and 504 Financing

SBA loans — backed by the U.S. Small Business Administration — are powerful tools for financing owner-occupied commercial real estate. While they aren’t designed for investment properties, they provide attractive terms to small business borrowers who plan to occupy at least 51% of the building they’re buying, renovating, or constructing.

This guide, one in our collection of pieces on commercial financing types, focuses on how brokers can place SBA 7(a) and 504 loans, what makes a deal eligible, and what to watch out for.

What Are SBA Loans?

SBA loans aren’t made by the government. Instead, they’re issued by approved banks or non-bank lenders and partially guaranteed by the SBA. That guarantee helps reduce lender risk and allows them to offer longer terms and lower down payments than most conventional CRE loans.

The two main loan programs are:

• SBA 7(a): Flexible loan that can be used for real estate, equipment, working capital, or business acquisition. Max loan size: $5 million.
• SBA 504: Structured specifically for real estate and equipment purchases. A Certified Development Company (CDC) provides 40% of the financing, a bank covers 50%, and the borrower puts in 10% (more if it's a special-use or startup).

Both programs require the business to occupy a majority of the property (51% for existing buildings, 60% for ground-up construction).

When SBA Loans Make Sense

These loans are built for business owners who want to buy, renovate, or build their own space. They’re often a better fit than conventional bank loans because of lower down payment requirements (often 10%, but sometimes lower or higher) and longer amortizations (typically 20 to 25 years).

Good candidates include:

• Medical or dental practices buying a building
• Light manufacturing businesses expanding into owned facilities
• Small business owners with strong cash flow but limited liquidity
• Borrowers turned down by banks for lack of collateral or seasoning

What SBA Loans Cannot Be Used For

SBA loans cannot be used — no matter what— for:

• Investment properties (e.g. multifamily, rental portfolios, fix and flips)
• Passive income businesses or landlord-only entities
• Absentee ownership or borrower tenants occupying less than 51%
• Speculative ground-up development without a clear owner-user purpose

The SBA’s core requirement is that the borrower must operate a real business from the property being financed.

What Lenders Want to See

Underwriting varies by lender, but some basics apply across the board:

• Use of proceeds: Must align with SBA eligibility (e.g. owner-occupied CRE, equipment)
• Personal credit: 650+ is typically the floor, though exceptions exist
• Cash flow: The business must show ability to repay the loan based on historical or projected income
• Guarantors: Personal guarantees are required from all 20%+ owners
• Equity injection: Minimum 10% from the borrower; more in some cases (startups, special-use)

SBA loans involve more paperwork and oversight than conventional bank loans — but they’re also more accessible to credit-worthy business owners who don’t fit a traditional mold.

What Brokers Often Miss

1. Submitting non-owner-occupied deals

If the borrower isn’t going to use the space for their business, the deal doesn’t qualify.

2. Overpromising speed

SBA loans move slower than bank loans, especially the first time through. Prep your borrower for 60–90 days.

3. Weak packaging

Lenders want clean personal and business financials, tax returns, business plans (for 504), and a clear use of funds.

4. Undervaluing CDC role in 504

You’re coordinating with two lenders — the bank and the CDC. It takes more planning than a single-source loan. More time, too.

5. Misunderstanding down payment rules

Startups and special-use properties may require 15% or even 20% equity. Don't assume 10% works for every deal.

What to Do If It Doesn’t Fit

If the borrower isn’t eligible for SBA, consider:

• Conventional bank loans for well-qualified borrowers
• Equipment financing separately if CRE doesn’t qualify
• Bridge financing while working toward SBA eligibility
• Partnering or restructuring to meet the 51% occupancy rule

Getting SBA Deals Closed

Brokers can absolutely play a role in SBA deals — but transparency is key. Your fee must be fully disclosed (typically via SBA Form 159), and not all lenders pay broker fees, so it’s important to clarify that upfront.

• Set expectations early about paperwork, timelines, and personal guarantees
• Prequalify on both business cash flow and personal credit
• Get clear documentation on occupancy and ownership
• Match the right lender to the borrower’s business and geography
• Be a guide — the SBA can be clunky, but it works

Helping Small Businesses Build Equity

SBA loans are a gateway for small business owners to stop renting and start owning. They require more documentation and involvement, but the payoff — control of their space, predictable costs, and long-term equity — is often worth it.

As a broker, your role is to help borrowers understand what’s required, avoid the common pitfalls, and find the right lender to get them over the line.