SBA SOP 50 10 8, A.Ch3.C.1 — Occupancy

SOP 50 10 8 A.Ch3.C.1

Effective 2025-06-01 · publisher's stamp for this provision

1. Occupancy 13 CFR § 120.131 Amount of Rentable Property (based on the total project) that can be leased: When loan proceeds are used to purchase or improve real estate, or when debt secured by real estate is refinanced with loan proceeds: i. For an existing building, the Applicant must occupy 51% of the Rentable Property and may lease to a third party up to 49%; or ii. For new construction, the Applicant must occupy 60% of the Rentable Property, may permanently lease to a third party up to 20% and temporarily lease an additional 20% with the intention of using some of the additional 20% within 3 years and all of it within 10 years. When the real estate is owned by an EPC: i. The EPC must lease 100% of the Rentable Property to an eligible OC(s). ii. For an existing building, the OC(s) must occupy 51% of the Rentable Property and may sublease up to 49%; or iii. For new construction, the OC(s) must occupy 60% of the Rentable Property, may permanently sublease to a third party up to 20% and temporarily sublease an additional 20% with the intention of using some of the additional 20% within 3 years and all of it within 10 years. “Rentable Property” is the total square footage of all buildings or facilities used for business operations (13 CFR § 120.10) excluding stairways, elevators, and Section A, Ch. 3: Uses of Proceeds mechanical areas and including common areas. Rentable Property may also include exterior space (except parking areas) that is actively used in Borrower’s business operations. Examples of exterior space that is actively used in Borrower’s business operations include: outdoor storage yards for general contractors, trucking companies, and moving and storage companies; or boat slips and docks for marinas. To determine the occupancy percentage allocated to the Applicant or OC(s), the SBA Lender may include the square footage of all common areas. In an existing building zoned for both commercial and residential use, subject to the space occupancy requirements set forth above, the business owner may either occupy or rent to a third party the space zoned for residential use. However, any residential property occupied by the business owner will only be considered to be occupied by the business if it meets the requirements of Subparagraph h below as well as zoning requirements. Circumstances may justify allowing the Applicant a period of time after closing of the SBA Loan to comply with the above occupancy requirements such as when a pre-existing lease may have a few more months to run. In no case may the small business have more than 1 year to meet occupancy requirements. CDCs must not submit a 504 closing package if the Borrower will not be occupying and operating in the required amount of Project property after closing and funding. If the Borrower will not be able to meet the occupancy requirements, the CDC must submit in advance and in writing to SLPC a request to extend the period of time necessary for the Borrower to meet occupancy requirements, along with an explanation and any supporting documentation, for SLPC approval. The underlying premise is that an SBA 504 loan is permanent, take out financing. A CDC must not submit a 504 closing package where the Borrower is not occupying and operating upon funding, unless facts to the contrary have been submitted to and approved by the SLPC in advance. If SLPC approves such request, once the Borrower is occupying the property in accordance with the Authorization, the CDC must submit a 327 action certifying the Borrower’s compliance within the approved timeframe. The restrictions above apply regardless of whether the Rentable Property is leased to a commercial or residential tenant. The Borrower may not use loan proceeds to improve or renovate any of the Rentable Property to be subleased to a third party. For 504 loans, such improvements may not secure the Third Party Loan. During the life of the loan, the real estate pledged as collateral for the loan, or where the Borrower or Operating Company conducts its business operations, may not be leased to or occupied by any business that the Borrower or Operating Company knows is engaged in any activity that is illegal under Federal, state or local law or any activity that can reasonably be determined to support or facilitate any activity that is illegal under Federal, state or local law (such as a marijuana dispensary). If a Borrower or Operating Company does lease space to such a business, for 7(a) loans, the Lender must notify SBA counsel as soon as the Lender becomes aware of the lease and advise of the action(s) the Lender intends to take Section A, Ch. 3: Uses of Proceeds and, for 504 loans, the CDC must notify SBA counsel as soon as the CDC becomes aware of the lease to determine what action(s) should be taken. Residential Space as Part of the Business If the nature of the business requires a resident owner or manager, loan proceeds may be used for the purchase of an existing building(s) or construction of a new building(s) that includes residential space essential to the business. The square footage of the residential space must be appropriate to the needs of the business and may not exceed 49% of the total property. For example, a horse-boarding facility may require that someone be on premises at all times to care for the horses. In this case, the residential property would be considered to be occupied by the business.

Source: SBA SOP 50 10 8, A.Ch3.C.1 — Occupancy · source URL · snapshot 535743ffe062cc34