How business owners buy Commercial Real Estate

One of the biggest misconceptions I hear from business owners is that there’s only one type of commercial real estate loan.

In reality, there isn’t.

There are multiple financing strategies, each designed for different borrowers, different businesses, different property types, and different long-term goals.

Over the years, I’ve helped physicians purchase medical offices, contractors acquire warehouses, manufacturers expand into larger facilities, restaurant owners open additional locations, and professional firms buy the buildings where they operate. Very few of those transactions looked exactly alike.

Some used SBA financing.

Others qualified for conventional bank loans.

And some required higher interest rate portfolio or private money/hard money lenders.

Others involved seller financing or bridge loans to get across the finish line.

The key isn’t finding a loan.

The key is finding the right loan.

This guide walks through the financing options I most commonly discuss with business owners considering the purchase of their own commercial property.

The Broker’s Edge Owner-Occupied Financing Roadmap

Every transaction is different, but this is generally how I evaluate financing options for business owners.

Buying Your Own Building
          │
          ▼
Can you qualify for SBA financing?
          │
     Yes       No
      │         │
 SBA 7(a)   Conventional Bank?
 SBA 504         │
                 ▼
          Portfolio Lender?
                 │
      ┌──────────┼──────────┐
      │          │          │
Business   Seller     Private Money
Statements Financing   / Bridge

The goal isn’t to force every borrower into the same loan program.

The goal is to identify the financing solution that best fits the borrower, the business, and the property.

Let’s explore the most common options.

Initially, I was going to title this blog posting;

HOW BUSINESS OWNERS BUY THEIR OWN BUILDING

There Is More Than One Way to Stop Paying Rent and Start Building Equity

Here is what I once told a business owner/prospective borrower “The lender will only finance 60%.”

Those aren’t words any business owner wants to hear.

Several years ago, I was helping the owner of a successful gelato shop purchase a commercial building for the second location of his growing gelato business. He had never owned even a home and had saved all his money for buying this property.

Unfortunately, there were a few problems.

The banks were unwilling to stretch guidelines as his cash flow was ok, but it was still a retail business struggling after COVID. Even my typical hard money lenders were challenged to make this loan. One of these lenders liked his story, but he was only willing to finance 60% of the purchase price. Most hard money lenders are real estate equity focused and lend to about a 60% loan to appraised value/purchase price. My client had enough cash for only a 20% down payment.

At first glance, the transaction appeared impossible.

Many borrowers would have assumed the deal was over.

Instead, I asked the listing agent a different question as she was a client of mine as well.

Would the seller be willing to carry back a second mortgage?

Fortunately, the answer was yes. The seller needed income and the rate on the 2^nd loan would help them with expenses.

The final financing looked like this:

• 60% First Mortgage
• 20% Seller Carry-Back Second Mortgage
• 20% Cash Down Payment

The purchase closed successfully.

The borrower became the owner of both his business and the building where it operated.

That transaction reinforced something I’ve learned repeatedly throughout my career:

Buying your own commercial building isn’t about finding one perfect loan. It’s about finding the right financing strategy.

Many business owners believe they have only one financing option.

In reality, there are often several.

Why More Business Owners Are Choosing to Own Instead of Lease

Owning the building where your business operates can provide advantages that extend well beyond simply making monthly payments.

Potential benefits include:

• Building equity instead of your landlord’s.
• Greater control over your business location.
• Potential appreciation of the real estate over time.
• Protection against rising lease rates.
• Potential tax advantages (consult your CPA).
• Long-term stability for your employees and customers.
• Additional retirement asset diversification.

For many business owners, the building eventually becomes one of their largest investments. San Francisco has become the poster child for one of the quickest turnarounds. As it was labeled as going through a Doom Loop, many factors have drastically changed the narrative as I write this. 

The next question becomes…

How do you finance it?

Before You Start Comparing Loans…

Every owner-user financing conversation begins with understanding four things:

• The business

• The property

• The borrower

• The long-term plan

Those four items determine almost every financing recommendation.

Then continue.

That becomes your methodology.

There are multiple financing strategies…

No single lender offers every financing solution. One reason business owners work with experienced commercial mortgage brokers is access to multiple lending sources, each designed for different situations.

Strategy 1: SBA 7(a)

Best For

Business owners who need flexibility.

The SBA 7(a) program is one of the most versatile owner-user loan programs available because it can finance much more than just the real estate.

Depending on the transaction, proceeds may be used for:

• Purchasing commercial property
• Buying an existing business
• Financing equipment
• Tenant improvements
• Furniture and fixtures
• Inventory
• Working capital
• Closing costs

Rather than obtaining several loans, many borrowers can finance multiple business needs through a single transaction. It also requires only a minimum down payment of 10%.

Common Property Types

• Medical offices
• Dental offices
• Office buildings
• Retail buildings
• Restaurants
• Warehouses
• Mixed-use properties
• Light industrial

Advantages

✓ Lower down payment than many conventional loans. Higher Loan to Values (LTVs) to 90%

✓ Longer repayment terms-25 Year Fixed Rate Programs are available for well qualified borrowers and their businesses.

✓ Flexible use of proceeds

✓ Preserves working capital

Considerations

• SBA eligibility requirements
• More documentation
• Personal guarantees
• Occupancy requirements of 51% of building
• Cross collateralization with primary residence on 90% LTVs
• SBA underwriting guidelines
• SBA Guaranty Fee, while financed, can add 2-3% to the borrowed loan amount

Strategy 2: SBA 504

Best For

Businesses planning to occupy a building for many years.

Unlike the SBA 7(a), the SBA 504 program focuses primarily on purchasing major fixed assets such as commercial real estate and heavy equipment.

Many medical professionals, manufacturers, contractors, and professional firms choose this program when buying what they expect to be their long-term business location.

Advantages

• Low down payment still as little as 10%
• Long amortization…still 25 years
• Fixed-rate SBA component available
• Excellent long-term financing
• Reduced SBA Guaranty Fees

Considerations

• More structured approval process
• Occupancy requirements of 51% of building
• Slightly longer closing process

Strategy 3: Conventional Bank Financing

Best For

Businesses with strong financial statements and substantial liquidity.

Traditional commercial banks often offer excellent financing for borrowers with:

• Strong cash flow
• Good debt service coverage
• Significant reserves
• Strong credit
• Larger down payments

Advantages

• Competitive rates and often lower than SBA Prime Based Loans
• Less government involvement- No SBA Guaranty Fees
• Relationship banking- while deposit is often needed, it earns interest
• Potentially faster approvals than most attractive rate SBA lenders

Considerations

Banks generally expect stronger financials, and larger equity contributions than SBA lenders.

Conventional banks often become the preferred solution when:

• The borrower has substantial liquidity.
• The business has several years of consistent profitability.
• The owners want the lowest long-term borrowing costs.
• The business does not need the flexibility of SBA financing.

Strategy 4: Credit Union Financing

Credit unions are frequently overlooked by business owners.

Many actively finance:

• Medical practices
• Dental offices
• CPA firms
• Professional offices
• Local retail businesses

They often emphasize long-term relationships and local decision-making.

Depending on the institution, underwriting may be more flexible than many borrowers expect.

Credit unions frequently keep loans on their own books.

That sometimes allows them to be more relationship-oriented than larger institutions.

Strategy 5: Portfolio Lending

Sometimes a borrower doesn’t fit conventional guidelines.

Sometimes the property doesn’t.

Portfolio lenders can often provide long term financing when:

• The property is unique.
• Income documentation is unusual. Some use bank statements versus tax returns.
• Ownership structures are complex.
• The borrower doesn’t meet SBA eligibility requirements.
• Future business growth is more meaningful than historical tax returns.

These lenders keep loans on their own balance sheet, allowing them to evaluate each transaction individually.

Portfolio lending often begins where traditional underwriting ends.

Example: SBA Alternative Program

One portfolio lender I work with offers an attractive alternative for borrowers who do not qualify for SBA financing because of citizenship requirements or who need a more flexible underwriting approach.

Highlights include:

• Up to 80% LTV for purchases
• Up to 70% LTV for rate-and-term refinances
• Up to 65% LTV for cash-out refinances
• Loan amounts up to $10 million
• Projection-based underwriting available
• Borrower occupancy starting at 25%
• Generic commercial property types
• Available to eligible borrowers who are legally present in the U.S. and meet the lender’s program requirements

While pricing is generally higher than traditional bank financing, it is often considerably lower than private money.

For many borrowers, this program fills an important gap between conventional financing and hard money.

Example: Business Bank Statement Program

Many successful business owners minimize taxable income through legitimate deductions recommended by their CPA.

Unfortunately, those deductions can make qualifying with traditional tax-return underwriting more difficult.

Some portfolio lenders instead evaluate 12 months of business bank statements to determine cash flow and repayment ability, making these programs especially useful for self-employed borrowers with strong business deposits. Eligible transactions may include purchases, refinances, and cash-out refinances, subject to the lender’s guidelines.

Strategy 6: Seller Financing

Seller financing remains one of the most underutilized tools in commercial real estate. Although I know some real estate agents that coach their seller clients to consider that as the first strategy.

As my gelato client discovered, it can sometimes bridge the difference between what a lender will finance and what a buyer needs to complete the purchase.

Seller financing may help:

• Reduce the buyer’s cash requirement
• Fill financing gaps
• Create flexibility during negotiations
• Facilitate transactions that otherwise might not close

Not every lender permits seller financing as a 2^nd Deed of Trust, however, sometimes it makes sense as a 1^st Deed of Trust without another lender involved. Each transaction must be carefully structured, but when appropriate it can become a valuable part of the financing strategy.

Why would a seller not want all the cash at closing? Sometimes they still like the building they are selling and also want the cash flow from a Deed of Trust on this building they still like.

Sometimes the best loan isn’t just one loan.

Sometimes it’s a combination of financing solutions.

Option 7: Private Money & Bridge Financing

There are times when speed matters more than securing the lowest interest rate.

Private money and bridge lenders can be valuable when:

• The purchase must close quickly.
• The property needs improvements before conventional financing.
• SBA timing doesn’t fit the transaction.
• The borrower intends to refinance into permanent financing later.

Bridge financing often serves as a temporary solution that creates opportunities conventional lenders cannot accommodate within required timelines.

Two key considerations these lenders ask themselves at the beginning:

1) How will this borrower be able to pay me monthly (unless there is an Interest Reserve collected upfront to make these payments?

2) How will this borrower be able to pay me off after the loan term is up in 6, 12,18 or 24 months? Some lenders want a written exit strategy from the borrower so it is clear to everybody what is likely to take place.

Common Mistakes Business Owners Make

After helping business owners finance commercial properties for many years, I’ve seen several mistakes repeated over and over.

• Waiting until the lease is about to expire.
• Talking with only one lender.
• Focusing only on interest rates instead of overall financing strategy.
• Underestimating closing costs and required reserves.
• Assuming tax returns tell the entire financial story.
• Not understanding occupancy requirements.
• Believing one lender’s “No” means every lender will say no.

One declined loan does not necessarily mean the transaction can’t be financed.

Sometimes it simply means a different lending strategy is needed.

Comparing Your Financing Options

Financing Option	Typical Equity Requirement	Flexibility	Ideal Borrower
SBA 7(a)	Low	Excellent	Business owners needing maximum flexibility
SBA 504	Low	Very Good	Long-term owner-occupants purchasing a permanent location
Conventional Bank	Moderate to High	Moderate	Businesses with strong financials and liquidity
Credit Union	Moderate	Good	Local businesses seeking relationship banking
Portfolio Lending	Varies	Excellent	Unique borrowers or properties outside conventional guidelines
Business Bank Statement	Moderate	Excellent	Self-employed borrowers with strong deposits but lower taxable income
Seller Financing	Negotiable	Excellent	Buyers needing additional flexibility or financing support
Private Money / Bridge	Varies	Excellent	Time-sensitive or transitional transactions

Every business owner’s situation is different.

Choosing between SBA financing, a conventional bank, a credit union, a portfolio lender, seller financing, or bridge financing isn’t simply a matter of comparing interest rates. It’s about matching the financing strategy to your business, your property, your cash flow, and your long-term goals.

That’s why I begin every owner-user financing conversation with questions—not loan products. Once we understand your objectives, we can evaluate which strategies may be the best fit.

🔎 BROKER’S EDGE – Smarter Real Estate Lending
🤝 Looking out for your Best Interest, and Helping Homeowners, Investors & Small Business Owners since 1990

📞 Steven Hook | Residential & Commercial Mortgage Broker

📱 415-260-9376 | 📠 415-449-3428

🎓 MBA | CMPS | CMA

👉 Schedule a Call
🌐 SanFranciscoLoanOptions.com
🌐 shook@Uamco.com or smhloans007@gmail.com

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This content is provided for informational purposes only and is not a loan commitment or guarantee of financing. Loan programs, rates, terms, and conditions are subject to change and borrower qualification. Individual results may vary.