Can You Lease Out Space in an SBA 504 Building?

If you are thinking about buying or building a commercial property in Georgia, you may wonder whether you can lease out the space you do not need. Many owners want to rent extra rooms or suites to a tenant and let that rent help cover costs. With an SBA 504 loan, the answer is generally yes, but only within limits. This article explains how leasing out space in an SBA 504 building works, how much of the property you typically need to occupy yourself, and what to plan for before you apply.

Quick Summary

• Yes. A business owner can generally lease out part of a property financed with an SBA 504 loan, as long as the business is the primary occupant.
• The SBA 504 program is built for owner-occupied property. It cannot be used for speculation or investment in rental real estate.
• For an existing building, sources that describe the SBA rules generally say the business must occupy at least 51 percent of the rentable space.
• For new construction, the required share is generally higher, at least 60 percent, and the plan usually involves growing into more of the space over time.
• Leasing out the remaining space is usually allowed, but the tenant, lease terms, and timeline are reviewed as part of the loan.
• Rental income from extra space can help, but it should not be the reason you buy the building.
• Rules can change, so confirm the current requirements with GSBC before you sign a purchase contract.

Can You Lease Out Space in an SBA 504 Building?

Yes, in most cases. The SBA 504 loan exists to help small businesses own the real estate they operate from. It is not meant for landlords who plan to collect rent from other businesses. The SBA states that a 504 loan cannot be used for speculation or investment in rental real estate.

That said, owner-occupied does not mean you must use every square foot on day one. A growing business often buys a building with room to spare. Leasing out that extra space for a period of time is a common and accepted part of many 504 projects, as long as your business clearly is the main user of the property.

How Much of the Building Do You Need to Occupy?

The occupancy test is the heart of this topic. The figures below are the ones generally described by SBA 504 lenders and development companies. Your exact requirement depends on your project, so treat them as a starting point.

Project typeTypical minimum owner occupancyWhat that means for leasingExisting building (purchase)At least 51% of rentable spaceUp to about 49% may be leased to other tenantsNew construction (ground-up)At least 60% of rentable spaceA smaller share can be leased, and the plan usually includes growing into more space over time

Rentable space means the usable floor area of the building, not the land or the parking lot. Your lender and the CDC will measure it, so ask how they count common areas before you commit to a building.

A Simple Hypothetical Example

Say a business owner is buying an existing 10,000 square foot building in Macon. At a 51 percent minimum, the business would need to occupy at least 5,100 square feet. That leaves up to 4,900 square feet that could be leased to other tenants. If the same owner were constructing a new 10,000 square foot building, a 60 percent minimum would mean occupying at least 6,000 square feet from the start. This is an illustration only, not a quote or a promise of approval.

What Is a CDC Loan and Why Does It Matter Here?

An SBA 504 loan is often called a CDC loan because a Certified Development Company (CDC) provides part of the financing. Georgia Small Business Capital (GSBC) is a CDC. In a typical 504 project, a bank or credit union provides the first-lien loan (the main loan that gets paid first if something goes wrong), the CDC provides a second loan backed by the SBA, and the business owner provides a down payment. Because the CDC is responsible for checking that the project meets program rules, it will look closely at your occupancy plan. You can read more on our SBA 504 loan program page.

How to Plan Your Occupancy: Step by Step

1. Measure the building. Get the total rentable square footage and the floor plan.
2. Decide how much space your business needs today and in the next few years.
3. Calculate your occupancy share. Divide your planned square footage by the total rentable square footage.
4. Compare that share to the typical 51 percent (existing building) or 60 percent (new construction) minimums.
5. Identify the space you plan to lease and think about who might rent it.
6. Talk with GSBC early so the occupancy plan is reviewed before you are locked into a contract.

What Happens to the Space You Lease Out?

When you lease space to another business, a few things generally matter:

• The tenant. Lenders usually want to understand who will occupy the space and whether the lease is stable.
• The lease. Written leases with clear terms are typically expected. Lease length and renewal terms can affect how the property is viewed.
• The plan for the space. For a growing business, the plan often describes when you expect to use more of the building yourself.
• Your obligations. You remain responsible for the loan payments whether or not a tenant pays rent on time.

Lease agreements are legal documents. Have an attorney review any lease before you sign, and talk with a CPA about how rental income may be reported.

Is Rental Income Counted When You Apply?

It depends on the lender and the situation. Some lenders give limited credit for signed, in-place leases, while others focus mainly on your business cash flow. Do not assume rent from an empty suite will qualify you. The safer approach is to make sure your business can carry the payments on its own, and treat rent as a helpful extra.

Common Mistakes to Avoid

• Buying a building that is too big for your current needs, then relying on rent to make the numbers work.
• Assuming the occupancy percentage is flexible. It is reviewed at the start of the loan and expected to continue.
• Leasing space informally without a written agreement.
• Waiting until a contract is signed to ask whether the building fits the program.

Can a Georgia Business Owner Use an SBA 504 Loan on an Investment Property?

No. A property bought mainly to collect rent from others is not the purpose of the program. If your goal is to build a real estate portfolio, a different financing route is usually a better fit. If your goal is to own the building where you run your business, a 504 loan may be worth a look. Our team can also walk you through the 504 loan process so you know what to expect from start to finish.

The Bottom Line: Lease Extra Space, but Keep Your Business at the Center

Leasing part of your building can be a smart way to grow into a property, as long as your business is the main occupant. Focus on three things: your occupancy share, a clear plan for any leased space, and a business that can carry the loan on its own. Before you make an offer on a building, call GSBC to talk through your plans. Georgia business owners can reach our team at 404-373-8601, or you can contact GSBC online.

Frequently Asked Questions

Can I rent out part of my SBA 504 building in Georgia?

Generally, yes. You can typically lease the portion of the building your business does not occupy, as long as you meet the owner-occupancy minimum and the property is not bought mainly as a rental investment.

What percentage of an SBA 504 property must I occupy?

For an existing building, the commonly described minimum is 51 percent of the rentable space. For new construction, it is generally 60 percent. Your specific requirement depends on your project, so confirm it with your CDC.

Can I use a 504 loan to buy a building and lease all of it?

No. The SBA does not allow 504 loans for speculation or investment in rental real estate.

Does rental income help me qualify for a 504 loan?

It may help in some cases, but lenders vary. Most focus on whether your business can repay the loan, so do not count on tenant rent alone.

What happens if I stop meeting the occupancy requirement?

Occupancy rules are part of the loan program, and falling short could create problems with your loan. If your plans change, contact your CDC and lender before making changes to the property.