Owner Occupied Commercial Real Estate Financing at 90 Percent LTV

Owner Occupied Commercial Real Estate Financing at 90 Percent LTV

Ninety percent financing on owner occupied commercial real estate is achievable, but it is an SBA product, not a conventional bank loan. If a lender is offering 90 percent on a building your business will occupy, the structure behind it is almost always SBA 504 or SBA 7(a).

The reason is simple: the SBA guarantees a portion of the loan, which lets lenders finance up to 90 percent of an owner occupied property while a conventional owner occupied loan usually caps near 75 to 80 percent. That difference is 10 to 15 percent of the purchase price in preserved capital, which for an operating business is often the difference between buying its premises now and waiting years to save a larger down payment.

The catch is the word owner occupied. The 90 percent structure exists because the SBA is lending to an operating business buying its own building, not to an investor buying a rental. The business has to actually occupy the property, which is a specific, testable rule covered below.

The 90 Percent Structure: SBA 504 and SBA 7(a)

Two SBA programs reach 90 percent, and they are built differently.

SBA 504 finances a project 50 / 40 / 10. A conventional first mortgage bank funds 50 percent at a market rate. A Certified Development Company funds 40 percent through an SBA backed debenture that is fixed for 20 or 25 years on real estate. The borrower injects 10 percent. That is 90 percent financing, and the 40 percent debenture piece carries a long term fixed rate that is the structural prize of 504. It is limited to fixed assets such as real estate and long life equipment.

SBA 7(a) can finance up to 90 percent of an owner occupied property in a single loan, and it is more flexible than 504. A 7(a) loan can blend real estate with working capital, inventory, or business goodwill in an acquisition, which 504 cannot. The trade is that the real estate portion of a 7(a) loan often carries a variable rate rather than the long term fixed rate of the 504 debenture.

The rule of thumb: use 504 when the deal is real estate heavy and you want the fixed rate, and use 7(a) when the deal blends real estate with other business needs in one loan.

The Occupancy Rule That Unlocks 90 Percent

The 90 percent structure is only available on owner occupied property, and owner occupied has a specific meaning. The business that is borrowing must occupy at least 51 percent of an existing building it is buying, or at least 60 percent of a newly constructed building, with occupancy expected to rise toward 80 percent over ten years on new construction.

That means an owner can buy a building larger than the business currently needs and lease out up to 49 percent of an existing property to tenants, while still qualifying for 90 percent financing, as long as the business itself occupies the majority. It also means a pure investment property with no owner occupancy does not qualify for the 90 percent SBA structure. An investment property routes to conventional, DSCR, or CMBS financing instead, at lower leverage, typically 65 to 75 percent LTV.

The occupancy test is one of the first things to confirm on any 90 percent owner occupied deal, because a property that fails it is not eligible for the structure no matter how strong the business is.

The Down Payment: 10, 15, or 20 Percent

On the SBA path, the down payment on a 90 percent owner occupied deal follows a clear ladder.

Ten percent for a standard owner occupied property, which is the headline: 90 percent financing, 10 percent down.

Fifteen percent for a single purpose property, such as a hotel, gas station, car wash, or self storage facility, or for a business under two years old. Single purpose properties are harder to repurpose if the business fails, so the SBA requires more equity.

Twenty percent for a deal that is both single purpose and a startup, which carries the most risk and therefore the highest injection.

On the conventional path, expect 20 to 25 percent down because conventional owner occupied loans usually cap near 75 to 80 percent LTV. The value of the SBA structure is keeping that extra 10 to 15 percent of the purchase price working inside the business, in inventory, staffing, equipment, or expansion, instead of locked into the building.

When 10 Percent Down Is the Right Call, and What PeerSense Does

Ten percent down is usually the right call when the business can put the preserved capital to work at a higher return than the cost of the extra debt. A growing operating business that needs cash for inventory, staffing, or expansion often earns more on that capital inside the business than it costs to carry the higher loan balance. It is also the right call when the owner simply does not have 20 to 25 percent of the purchase price in liquid capital but runs a strong business.

The trade is real: 90 percent financing means higher monthly debt service and SBA paperwork and timelines. When an owner has ample capital, values speed over the fixed rate, and wants no SBA process, a conventional owner occupied loan at 75 to 80 percent can be the better fit.

PeerSense is an independent capital advisor, not a lender. On an owner occupied real estate deal, it confirms the occupancy test, sizes the 504 and 7(a) structures and the conventional alternative, and routes the deal to whichever program delivers the right mix of leverage, rate, and speed for the specific business. PeerSense is paid at closing only, so its only incentive is the best structure for the owner. If you are buying or refinancing a building your business will occupy, share the deal facts in the form below.