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The rules

Occupancy Requirements of an SBA 504 Loan

An SBA 504 loan requires the borrowing business to occupy at least 51% of an existing building. For new construction, the business must occupy at least 60% at the outset, with a plan to grow into more of the building over time. The remaining space may be leased to tenants.

If you remember only one rule about SBA 504 loans, let it be this one. 51% of an existing building. 60% of a new one. Occupancy is what separates a 504 from a commercial mortgage, and it's where most confusion lives.

Existing buildings: 51%

Your business must occupy at least 51% of the rentable square footage from the start. The other 49% can be leased to tenants, and the rental income can be counted toward your ability to carry the loan. Source: 13 CFR 120.131(b).

New construction: 60%, growing

Building new, your business must occupy at least 60% when the building is complete. You can lease up to 20% permanently, and another 20% temporarily, provided you plan to occupy some of that temporary space within three years and all of it within ten years. Source: 13 CFR 120.131(a).

What counts as occupying

  • A dentist who uses 3,000 of 5,000 square feet and leases the rest: qualifies (60%).
  • A warehouse you use for your own storage and operations: occupied.
  • Space used by an affiliate you control: generally counts, subject to SBA rules on affiliates.
  • A strip mall you buy to lease out entirely: does not qualify. That's investment property. Rental property and the 504.
  • Living upstairs: mixed residential use has its own rules; ask before you assume.

If a tenant leaves and you drop below the line

The occupancy test applies at the time of the loan. If a tenant's departure later leaves you with more empty space than the rule contemplates, you're not in default for it; the rule doesn't require you to fill leased space with your own operations. What matters is that the business occupies what it committed to occupy. Call your servicing officer before anything changes materially. What happens after you close.

Questions

Can I lease part of my building?
Yes, up to 49% of an existing building, or the permitted portions of a new one.
Does a warehouse I use for storage count as occupied?
Yes, if your business uses it for its operations.
Do I need to occupy it on day one?
For an existing building, yes. For new construction, the phased schedule above applies.

Verified against 13 CFR 120.131 in September 2026. This page is for general informational purposes only.