# What are the SBA occupancy rules for new construction?

**Short answer:** You must occupy at least 60% of the Rentable Property. Up to 20% may be leased permanently. The last 20% may be leased temporarily if you plan to use some within 3 years and all within 10. Source: 13 CFR § 120.131(a).

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Last checked: 2026-11-08

New construction requires you to occupy at least 60% of the Rentable Property. 13 CFR § 120.131(a) and SOP 50 10 8.1, Section A, Ch. 3, Para. C, set the split for 7(a) and 504 loans.

## The three slices

- At least 60%: occupied by your business.
- Up to 20%: permanently leased to third parties.
- The remaining 20%: leased temporarily, with the intention of using some of it within 3 years and all of it within 10 years.

For example, in a 10,000 square foot building, you occupy at least 6,000 square feet. You may permanently lease up to 2,000. The last 2,000 can be leased temporarily.

## When an EPC owns the building

The Eligible Passive Company (EPC) must lease 100% of the Rentable Property to the operating company. The operating company then meets the same 60% test and can sublease within the same limits.

## Rules for the leased space

- Proceeds cannot improve or renovate space to be subleased to a third party. On a 504, those improvements cannot secure the Third Party Loan.
- The restrictions apply to commercial and residential tenants alike.
- Space cannot go to a business the borrower knows is engaged in illegal activity, such as a marijuana dispensary.

13 CFR § 120.870(b) states the same 60% and 20% limits for 504 projects.

## Sources

- [13 CFR § 120.131(a)](https://www.ecfr.gov/current/title-13/section-120.131)
- [13 CFR § 120.870(b)](https://www.ecfr.gov/current/title-13/section-120.870)
- [SOP 50 10 8.1, Sec. A, Ch. 3, Para. C.1 (p. 54 to about p. 56)](https://legacy.sba.gov/sites/default/files/2026-10/SOP%2050%2010%208.1%20Technical%20Policy%20Updates%20effective%20%2010.1.2026.docx)