SBA Loans For Mixed Use Properties
Mixed use properties include both commercial and residential space and both the SBA 504 and the SBA 7a program allow loans for businesses that occupy at least 51% of the “net rent-able square footage” of the building. (In some cases basements can be counted in the total square footage).
Net Rentable Square Footage is defined by the Small Business Administration as:
“Rentable Property” is the total square footage of all buildings or facilities used for business operations excluding vertical penetrations (stairways, elevators, and mechanical areas that are designed to transfer people or services vertically between floors), and including common areas (lobbies, passageways, vestibules, and bathrooms).
“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.
A very common, SBA-acceptable mixed use scenario would be a building or office condo with a retail business, restaurant, delicatessen, dry cleaner, laundromat, etc. on the first floor and an apartment or residential units upstairs.
Please note that in the case of ground up construction or major renovation that the occupant business must occupy at least 60% of the space initially AND you cannot use SBA guaranteed funds to build out space for a tenant, so practically speaking, a mixed-use property loan with residential or commercial tenants is better suited to an existing building without much need for renovation.
Mixed-Use With On-Site Manager:
If the business is a type that requires an on-site manager who lives on the property, the residential space that the on-site manager occupies can also be counted towards the business’s 51% occupancy but that space cannot exceed 49% of the total property.
Typically the following scenarios would qualify for SBA financing:
- a funeral home with living space for the funeral director and his or her family
- a dentist who takes care of patient emergencies after normal business hours
- a horse breeder who needs to be on premises 24/7 to take care of the horses
In these cases, lenders will typically count the residential square footage towards the business vs leased/tenant portion of the square footage for qualifying purposes.
More info: SBA 7a and SBA 504 Loans