Can you rent out part of an SBA-financed building?

Why the rule exists

SBA financing for real estate is meant to help a business occupy and use property, not to make it a landlord. Section 120.131 recognizes that owners often build or buy more space than they need today and may want tenants for part of it. The rule sets the maximum share of space the borrower can lease out permanently and the minimum it must use itself. Both 7(a) and 504 financing are covered; the section says "whether 7(a) or 504." Compare the passive-business exclusion in 120.110(c), which keeps out landlords that do not actively use or occupy the property they finance.

New construction: 20, 60 and the long-term plan

For a new building, paragraph (a) has three tests that must all hold. The borrower may permanently lease "up to 20 percent of the Rentable Property" to one or more tenants. The borrower must permanently occupy and use "no less than 60 percent" of the Rentable Property. And it must plan to permanently occupy and use within three years some of the remaining space that is neither immediately occupied nor permanently leased, and plan to occupy and use all of that remaining space, other than space permanently leased, within ten years. The shape is a stepping stone: 60 percent now, up to 20 percent leased to others, and the final 20 percent as a growth reserve that the borrower must plan to grow into.

On a 20,000-square-foot new building the numbers are: up to 4,000 square feet may be permanently leased to others; at least 12,000 square feet must be occupied by the borrower; the remaining 4,000 square feet is the space the borrower plans to start using within three years and finish using within ten, unless it is permanently leased. If you lease the full 20 percent, the other 20 percent is the reserve you must plan to grow into; if you lease less, more space falls under that plan.

Existing buildings: 49 and 51

Paragraph (b) is simpler. When the SBA financing is for acquisition, renovation or reconstruction of an existing building, the borrower may permanently lease up to 49 percent of the rentable property if it permanently occupies and uses no less than 51 percent. On the same 20,000 square feet that is a lease ceiling of 9,800 and an occupancy floor of 10,200. There is no three-year or ten-year plan in paragraph (b) because an existing building is assumed to be usable now. The tool above does this arithmetic for either case.

Real estate holding companies

Both paragraphs end with a sentence for an Eligible Passive Company that leases 100 percent of the space to one or more Operating Companies: the Operating Company, or Operating Companies together, must follow the same rules. So the holding company structure does not escape the occupancy test; the operating business that uses the building has to be the one occupying at least 60 percent of new construction or 51 percent of an existing building. The structure of a holding company is explained in our passive company page.

What "permanently" and "Rentable Property" mean here

The section uses "permanently" for both occupancy and leasing, and "Rentable Property" as a capitalized term. Neither is defined within 120.131, and this page does not guess at the definition; the term is defined elsewhere in SBA rules. That means you cannot read the section as saying how short-term or temporary tenants are counted, whether common areas are in or out of the square footage, or how the percentages are measured against actual leases. Ask the lender how it will measure and document the square footage before you design the building.

What the rule does not say

It does not set rent levels, does not require a particular tenant mix, and does not say what happens if you later fall below the occupancy minimum. It also does not address ground-floor retail versus office space differences, parking, or pad sites. If your plan relies on tenants, put the square-footage plan in front of your lender early. The fees and servicing costs of a loan are discussed on our lender fees page, and what the loan can pay for on the uses page.

Sources

• 13 CFR § 120.131, Leasing part of new construction or existing building to another business. Read November 2, 2026.
• 13 CFR § 120.110, What businesses are ineligible for SBA business loans?. Read November 2, 2026.

Text read: Electronic Code of Federal Regulations, Title 13, Part 120, current through the eCFR issue date of October 29, 2026. Dollar figures and percentages on this page are the ones printed in those sections as of that date; SBA can amend the rule and publishes loan-program procedures (such as SOP 50 10) that add detail this page does not cover. Confirm current terms with an SBA-approved lender or at sba.gov. This page summarizes the regulation and does not replace it.