# Can SBA finance improvements on a ground lease?

**Short answer:** Yes, with conditions. The ground lease must let you encumber the leasehold and protect the lender at foreclosure. A 504 needs an unrelated lessor and a lease at least as long as the debenture. Source: SOP 50 10 8.1, Sec. A, Ch. 3, Para. C; 13 CFR § 120.870(a).

Canonical page: https://www.sbaexpress.loans/answers/sba-loan-ground-lease-improvements/
Last checked: 2026-11-09

Yes. SOP 50 10 8.1, Section A, Ch. 3, Para. C, allows proceeds to finance improvements on a leasehold interest in land. The underlying ground lease must include detailed clauses.

## Clauses the ground lease must have

- Your right to encumber the leasehold estate.
- No modification or cancellation of the lease without the approval of the lender or its assignee.
- The lender's right to acquire the leasehold at foreclosure or by assignment, and to reassign it. The lessor may not unreasonably withhold, condition or delay the reassignment.
- The lender's right to sublease.
- The lender's share in hazard insurance and condemnation proceeds.
- The lender's rights if the tenant defaults or the lease ends.

## The term

On a 7(a) loan for leased land, the limit is 25 years, plus any reasonable construction or renovation period (Appendix 17, Para. A.3). Leasehold improvements inside rented space cap at 10 years, plus up to 12 months to complete the improvements (Para. A.4).

## On a 504

13 CFR § 120.870(a) sets three conditions when the land is leased from an unrelated lessor:

- The remaining lease term, counting options only you can exercise, equals or exceeds the debenture term.
- You assign your interest in the lease to the Certified Development Company (CDC), with right of reassignment to SBA.
- The loan is secured by a recorded lien against the leasehold estate and other collateral as necessary.

Because leasehold improvements provide minimal collateral value, the CDC must consider requiring additional collateral (Section C, Ch. 1, Para. E.2.a).

## Sources

- [SOP 50 10 8.1, Sec. A, Ch. 3, Para. C, Responsibilities When the Borrower is Leasing Space (about pp. 57-58)](https://legacy.sba.gov/sites/default/files/2026-10/SOP%2050%2010%208.1%20Technical%20Policy%20Updates%20effective%20%2010.1.2026.docx)
- [SOP 50 10 8.1, App. 17, Paras. A.3 and A.4 (p. 390)](https://legacy.sba.gov/sites/default/files/2026-10/SOP%2050%2010%208.1%20Technical%20Policy%20Updates%20effective%20%2010.1.2026.docx)
- [13 CFR § 120.870(a)](https://www.ecfr.gov/current/title-13/section-120.870)
- [SOP 50 10 8.1, Sec. C, Ch. 1, Para. E.2.a (about p. 253)](https://legacy.sba.gov/sites/default/files/2026-10/SOP%2050%2010%208.1%20Technical%20Policy%20Updates%20effective%20%2010.1.2026.docx)