Use Your Business to Buy Your Building With No Down Payment

Written By Darin Manis

Use Your Business to Buy Your Building With No Down Payment

Owning the building where your small business or franchise operates can transform your financial future, building equity while securing a stable base for growth. With SBA 7(a) loans, you can finance 100% of the purchase of owner-occupied commercial real estate (CRE)—like offices, warehouses, or retail spaces—without a down payment, leveraging your business’s cash flow and value instead of personal savings.

How It Works with SBA 7(a) Loans

SBA 7(a) loans offer flexible financing for purchasing or constructing owner-occupied CRE, allowing 100% financing under specific conditions. By using your business’s assets and profitability, you can avoid upfront cash injections, preserving capital for operations.

  • Owner-Occupancy Requirement: Your business must occupy at least 51% of the property (up to 49% can be leased to tenants). For new construction, this rises to 60% occupancy.

  • Zero Down Payment: If your business’s cash flow (DSCR ≥1.15 global) supports the loan and you lack personal real estate with 25%+ equity, lenders may waive the down payment and not require additional collateral.

  • Loan Terms: Up to 25 years if CRE is ≥50% of the loan amount, with rates of 8.5–10.5% (prime + spread). Shorter terms (10–17 years) apply if real estate is <50%.

  • Maximum Amount: Up to $5M, perfect for mid-sized projects like a $1.5M office purchase.

Example: A retail franchise with a 1.3 DSCR and no significant personal real estate equity finances a $1M store purchase fully through a 7(a) loan, using business assets as collateral—no cash down required.

Using a Separate Entity as Co-Borrower for Real Estate Ownership

Many borrowers create a separate entity, called an Eligible Passive Company (EPC), to own the real estate, while the Operating Company (OC)—your business—leases and occupies it. This structure, common in SBA CRE financing, limits liability, protects business assets, and ensures compliance with SBA rules.

  • Structure: The EPC (typically an LLC) owns the property and leases 100% of it to the OC. Both entities are co-borrowers, jointly responsible for the loan. Owners must hold identical stakes in both (e.g., same individuals with same percentages), but the EPC cannot be owned by the OC.

  • Lease Terms: The EPC leases the property to the OC at fair market rates, with a lease term matching the loan (e.g., 25 years). The lease is subordinate to the SBA mortgage, ensuring lender priority in default scenarios, allowing continued OC operations.

  • Co-Borrower Benefits: The EPC holds the property, isolating real estate risks from the OC’s operations. Both sign the loan, with the property as primary collateral, and owners (20%+ stake) provide personal guarantees. This setup supports 100% financing if cash flow is strong.

  • SBA Compliance: Meets 51% (existing) or 60% (new construction) occupancy rules. The EPC can own multiple properties leased to the OC(s), provided all meet SBA criteria. No changes in SOP 50 10 8 disrupt this standard practice.

Example: A franchise owner forms an EPC LLC to buy a $2M office building, leasing it to their OC (the franchise). Both are co-borrowers on a 7(a) loan with 100% financing, supported by the OC’s cash flow, with no down payment or personal real estate lien.

Comparison to SBA 504 Loans

SBA 504 loans also finance CRE but mandate a minimum 10% down payment and involve a Certified Development Company (CDC), making them less flexible for zero-down scenarios.

  • 504 Structure: Lender (50%), SBA/CDC (40%), borrower equity (10%+); fixed rates (~5–6%) and terms up to 25 years. The CDC portion has a lower fixed rate, but the lender’s 50% may have variable rates or balloon payments.

  • 7(a) Advantages: Faster processing (no CDC delays) and potential 100% financing for projects under $5M, ideal for owner-occupied properties with strong business financials.

Key Requirements and Considerations

  • Eligibility: Business must be for-profit, U.S.-based, meet SBA size standards, and pass the credit elsewhere test (no reasonable non-SBA financing available).

  • Financial Metrics: DSCR ≥1.15 global, FICO ≥650–680, and robust business cash flow to cover payments.

  • Collateral: The property is primary collateral; business assets or personal guarantees may be required. If personal real estate has 25%+ equity, a lien may be placed unless 100% financing is approved.

  • Restrictions: No speculative investments; properties must benefit the business with 51%+ owner occupancy.

  • Environmental Reviews: Mandatory for CRE, potentially adding 2–4 weeks (e.g., Phase I environmental assessments).

Think Inside the LoanBox

Zero-down financing through a 7(a) loan, paired with an EPC/OC structure, lets you acquire a building while preserving cash and limiting liability. LoanBox matches you with SBA lenders skilled in CRE financing to make this strategy work for your business.

  • Enjoy the ease of online lending with human support when you need it.

  • Leverage the expertise of LoanBox Advisors to guide you through the toughest scenarios.

  • Gain confidence from partnering with trusted banks and proven systems.

Skip the confusion. Minimize risk. Maximize clarity. Think inside the LoanBox.

Darin Manis
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