Building the space your business will operate from is one of the most valuable — and most complex — projects an owner-operator can take on. SBA construction financing makes it reachable by extending the same low-down-payment, long-term advantages of 504 and 7(a) to ground-up, owner-occupied builds. Jaken Finance Group helps you structure the SBA takeout and can fund the construction itself on a fast bridge. Request commercial financing or call (833) 264-7776.
SBA construction is for owner-occupants
The same owner-occupancy principle that governs SBA real estate applies to construction — with a higher bar. For a newly constructed building, your business must occupy at least 60% of the finished space (versus 51% for an existing building). You can lease the remaining 40% and count that income, but the majority-occupancy requirement means SBA construction is for businesses building their own home, not for developers building to lease or sell. Developers and investors building non-owner-occupied product use ground-up construction loans or commercial bridge financing instead.
How the programs handle construction
- SBA 504 construction — the classic owner-occupied build structure. The bank funds the construction first loan, the CDC debenture provides long-term fixed-rate financing on completion, and you put down about 10%. The fixed rate on a 25-year hold is especially valuable for a building you intend to keep.
- SBA 7(a) construction — folds construction into a flexible facility up to $5M, useful when the build is paired with equipment, working capital, or a business purchase. Variable rate, but one loan for everything.
Draws, timeline, and the bridge
Construction loans release money in stages against completed, inspected work — a draw schedule tied to milestones (foundation, framing, mechanicals, finish) rather than a single disbursement. That protects everyone and keeps the project on budget, but it also adds oversight. Layered on top of the SBA’s own review, an SBA construction file can take considerable time to arrange.
This is exactly where a construction bridge earns its place. Many owner-operators fund the build on a fast, flexible bridge — drawn as the project progresses — and then refinance into an SBA 504 at certificate of occupancy, capturing SBA’s low down payment and long fixed term as permanent financing. You get the speed and flexibility of private construction capital during the build, and the durability of SBA financing once the building is done and occupied. See bridge now, SBA later for how that sequencing works.
Budgeting the build
Before you finance anything, sanity-check the numbers. Construction costs vary widely by market, property type, and finish level — review commercial construction cost per square foot to ground your budget, and build in a real contingency. Lenders scrutinize the construction budget, the contractor, and the as-completed value; a credible, well-documented plan moves faster and finances more cleanly, whether the permanent takeout is an SBA 504 or a conventional loan.
What lenders scrutinize on a build
A construction file carries more risk than buying an existing building, so lenders and the SBA look harder at a few things. First, the general contractor — their license, bonding, experience with similar projects, and financial stability, since a contractor failure mid-build is the single biggest threat to the loan. Second, the budget and contingency — a credible, line-item cost breakdown with a real contingency (typically 5%–10%) rather than a round-number guess; underbudgeted projects stall, and a stalled project is a distressed one. Third, the as-completed appraisal — an independent valuation of what the finished, occupied building will be worth, which caps how much can be lent. Fourth, the timeline and interest reserve — construction loans often build in an interest reserve to cover payments during the build before the business is generating revenue from the space. Finally, your plans, permits, and entitlements should be in hand or clearly in process; a lender won’t fund dirt on a project that hasn’t cleared zoning. A borrower who brings a licensed contractor, a documented budget with contingency, approved plans, and a realistic timeline finances a build far more smoothly — and more cheaply — than one who shows up with a napkin sketch and optimism.
Eligibility
- For-profit U.S. small business occupying 60%+ of the completed building
- A credible general contractor, budget, and as-completed valuation
- As of March 1, 2026, 100% of owners must be U.S. citizens or U.S. nationals residing in the United States
The 60/20/20 occupancy rule
New-construction occupancy follows a specific formula worth planning around. You must occupy at least 60% of the finished building immediately, may lease up to 20% long-term, and may hold the remaining 20% for future expansion — with the requirement that within ten years your business occupies 80% and permanently leases no more than 20%. This “60/20/20” structure is generous by design: it lets you build bigger than you need today, lease part of the space to help carry the payment, and grow into the rest over a decade. Capturing that benefit takes planning — write the leases on the excess space with terms that let you reclaim it on the schedule the rule requires, so you can occupy 80% by year ten without a tenant standing in the way. Handled well, it’s one of the most valuable features of SBA construction financing for a growing business.
What materials inflation does to a fixed bid
Construction budgets written last summer are already stale. The producer price index for construction materials, not seasonally adjusted, was 375.908 in August 2026. It was 341.458 in August 2025. That is 10.1% higher than a year earlier, on the FRED WPUSI012011 series. The index is not a local bid. It is a national materials gauge.
Illustration: Apply that 10.1% move to a $2,000,000 materials allowance priced in August 2025. The same basket is about $202,000 higher ($2,000,000 × 0.101). Do not hand a lender last year’s vendor sheet and call it today’s cost. Reprice lumber, steel, concrete, and electrical gear, then add contingency on the new number.
A separate rate backdrop is the average 30-year fixed home mortgage. It was 7.28% for the week of October 1, 2026, and 7.03% the week of September 24, on FRED MORTGAGE30US. That is a home-loan average. It is not an SBA 504 rate and not a construction-loan quote.
504 rules for a building you will occupy
The SBA 504 page says the maximum 504 loan is $5.5 million. The headline on that page still says “up to $5 million.” Use $5.5 million in the sources and uses, and note the headline conflict in the memo so nobody “corrects” you downward by habit.
The same page allows purchase, construction, or renovation of buildings or land. It also allows long-term machinery with at least 10 years of useful life remaining. Terms are 10, 20, or 25 years. Fees total approximately 3% of the debt and may be financed. The rate is pegged to an increment above the 10-year Treasury. Get the live increment from the CDC. The public page does not list it.
A 504 loan cannot fund working capital, inventory, or speculation or investment in rental real estate. A developer building apartments or a spec warehouse for tenants is outside this program. Owner-occupants building the space their business will use are the 504 construction case. Pair that with the owner-occupied commercial real estate guide. If the exit is a rental, the takeout is a construction-to-DSCR rental loan, not a 504.
A 7(a) loan maxes at $5 million and can acquire, refinance, or improve real estate. There is no combined 7(a) plus 504 cap of $10 million on the pages above. The Working Capital Pilot’s rate caps are pilot-only. They do not set the price of a construction 7(a).
A draw schedule that adds up
Funds should track inspected work. Here is an illustration, not a required SBA split, on a $1,000,000 hard-cost budget:
| Stage | Share | Dollars |
|---|---|---|
| Foundation and site | 18% | $180,000 |
| Framing and shell | 22% | $220,000 |
| Mechanicals | 25% | $250,000 |
| Finishes | 20% | $200,000 |
| Final completion | 15% | $150,000 |
| Total | 100% | $1,000,000 |
Hold each draw until the inspector signs that stage. A lender who wires the finish draw at framing has no leverage left when the contractor slows down.
Illustration of an interest reserve: Assume an average outstanding balance of $1,200,000 at 10% annual interest for 9 months. The reserve is $90,000 ($1,200,000 × 0.10 × 9/12). The 10% figure is an illustration, not a Jaken Finance Group quote.
Which Jaken Finance Group clock applies during the build
Bridge loans from Jaken Finance Group close in 7–10 business days at 8.99%–13.5%. The separate new-construction program also prices at 8.99%–13.5%, and it closes in 10–14 business days. Use the bridge clock when you are bridging a purchase or a gap. Use the construction clock when the loan itself is funding the build. Neither clock is the SBA permanent loan.
DSCR rental loans are a different product. They close in about 14 business days at 5.75%–10.5%. They fit a completed rental. They do not fit an owner-occupied SBA takeout. Call (833) 264-7776 with the occupancy plan before you order the as-completed appraisal.
Soft costs and retainage on the same $1 million job
The draw table is hard cost only. Design, permits, insurance, and testing sit outside it.
Illustration: On that $1,000,000 hard-cost job, budget $35,000 for design, $18,000 for permits and fees, $12,000 for builder’s risk, and $8,000 for testing. Soft costs are $73,000. An 8% contingency on the hard cost is $80,000. Hard cost, soft cost, and contingency total $1,153,000 before land and before interest reserve. The reserve example above used a $1,200,000 average balance. Add that $90,000 only if your average balance really is $1,200,000. These figures are an illustration, not a bid.
Illustration of retainage: Hold 10%, or $100,000, until completion. The foundation wire is then $162,000 (90% of $180,000), not the full stage amount. The last wire releases the held $100,000 plus 90% of the $150,000 final stage, which is $235,000. Earlier wires cover 90% of the first $850,000, or $765,000. $765,000 + $235,000 = $1,000,000. Write down who initials each stage. The owner, the contractor, and the inspector should all sign before the wire goes out.
Contingency math on top of a refreshed bid
Illustration: Hard costs of $1,800,000 with an 8% contingency add $144,000. The budget the lender should underwrite is $1,944,000 before land, soft costs, and the interest reserve. A 5% contingency on a job that just absorbed a 10% materials move is thin. Show the CDC the vendor dates, not a round number with no backup.
Get matched
Building your own commercial space? We’ll help you structure the SBA takeout and fund the construction on a bridge so you can break ground without waiting on the SBA calendar. Request commercial financing or call (833) 264-7776.
Program details: SBA — loan programs. Rates and rules change; verify current terms at application. Jaken Finance Group helps structure the SBA takeout and can fund owner-occupied construction on a bridge.