The quick read: Yes. A medical or dental practice can use an SBA 504 loan to buy the building it practices in, as long as the practice permanently occupies at least 51 percent of an existing building (60 percent of new construction) under 13 CFR 120.131 and contributes at least 10 percent of the project cost, or 15 to 20 percent if the practice is two years old or younger or the building is limited or single purpose. Many practice owners hold title in a separate real-estate company that leases the space to the practice, which SBA permits under its Eligible Passive Company rule, with every 20 percent owner of either entity guaranteeing the loan.
As of: October 6, 2026 (13 CFR Part 120, January 1, 2025 edition, and SBA program pages read this date)
Occupancy, existing building: the practice permanently occupies and uses no less than 51% of the rentable property
Occupancy, new construction: no less than 60%, with up to 20% permanently leased to others
Minimum borrower contribution: 10%, or 15% for a practice operating two years or less or a limited or single purpose building, and 20% when both apply
Equipment inside a 504 project: useful remaining life of a minimum of 10 years
504 loan limit: $5,000,000 per borrower and affiliates for most projects under 13 CFR 120.931; SBA's 504 page states a $5.5 million maximum
Current SBA policy document: SOP 50 10 8.1, effective October 1, 2026
Can a medical or dental practice use an SBA 504 loan to buy its building?
Yes, a medical or dental practice can use an SBA 504 loan to buy the building it practices in, provided the practice occupies enough of it and the purchase is an owner-occupied fixed-asset project. SBA's 504 page lists buying buildings and land among eligible uses and bars speculation or investment in rental real estate.
That last line is the dividing point. A dentist buying the freestanding building her practice already rents, or a physician group buying a condo suite for its own clinic, is the owner-occupant the program is built for. An investor buying a multi-tenant medical office building to lease to unrelated practices is not, and that is a different financing problem, covered in the medical office building financing guide. This article is only the practice-owner path: the structure, the occupancy test, what can sit inside the project, the equity, and the choice between 504 and the other loan types.
How should a practice structure ownership of the building for a 504 loan?
Most practice owners hold the building in a separate real-estate company that leases it to the practice, and SBA allows this when the holding company is an Eligible Passive Company that uses the proceeds only for property it leases to the Operating Company, under 13 CFR 120.111. The practice remains the business whose occupancy and finances are tested.
Among the regulation's conditions on that arrangement, four shape the deal, and the CDC will check each one:
Form: the lease must be in writing and subordinate to SBA's mortgage or security interest on the property.
Term: the lease must have a remaining term at least equal to the term of the loan.
Rent: lease payments cannot exceed the amount needed to make the loan payment plus the passive company's direct expenses, so the holding company is not a profit center while the loan is outstanding.
Guaranties: the Operating Company must be a guarantor or co-borrower, each holder of 20 percent or more of either the Eligible Passive Company or the Operating Company must guarantee the loan, and 13 CFR 120.160 separately says holders of at least 20 percent generally must guarantee.
For a practice with two or three partners, that guaranty rule usually reaches every partner. For a dental or medical group with a passive investor or a retiring partner who still owns a stake, map the ownership of both entities before the CDC does.
How much of the building does the practice have to occupy?
For an existing building the practice must permanently occupy and use at least 51 percent of the rentable space, and for new construction at least 60 percent, under 13 CFR 120.131, so a single-practice building passes easily while a building shared with other tenants needs its square footage checked first.
In an existing building, the borrower may permanently lease up to 49 percent of the rentable property to other tenants. In new construction, the borrower may permanently lease up to 20 percent and must plan to grow into the rest over time. The test is measured on rentable space, not on rent, so a practice that occupies a smaller suite in a building with a high-rent pharmacy or imaging tenant can still pass if its square footage clears the threshold.
Hypothetical example: a two-story, 8,000-square-foot existing building where the practice uses the 4,000-square-foot ground floor and leases the second floor to an unrelated tenant. The practice occupies 50 percent, which fails the 51 percent test. Taking 100 more square feet of the second floor, or remeasuring the rentable area with common space allocated correctly, can be the difference between a 504 file and a conventional one.
Can build-out and dental or medical equipment go inside the 504 project?
Build-out and long-life equipment can sit inside a practice's 504 project, because 13 CFR 120.882 counts costs directly attributable to the project and SBA's 504 page lists long-term machinery and equipment with a useful remaining life of a minimum of 10 years among eligible uses.
For a practice that matters, because the purchase price is rarely the whole bill. Renovating exam rooms or operatories, plumbing, electrical and HVAC work, and other construction attributable to the project count as project costs. Where construction is involved, 13 CFR 120.882(b) allows a contingency reserve for cost overruns of up to 10 percent of construction cost, and paragraph (c) counts professional fees such as architectural and engineering costs, appraisals, environmental studies and title insurance.
Equipment is where files go wrong. Whether a specific chair, sterilization system or imaging unit belongs inside the 504 depends on its documented useful remaining life, not on its price. Shorter-lived items, computers, instruments and supplies sit outside it, and SBA's 504 page bars using 504 proceeds for working capital or inventory. Those pieces go into a 7(a) loan, which SBA's 7(a) page says can fund machinery and equipment, furniture, fixtures and supplies, or into separate equipment financing.
How much down payment does a practice need on a 504 loan?
A practice that has operated for more than two years must contribute at least 10 percent of a 504 project, rising to 15 percent for a practice two years old or younger or a limited or single purpose building, and 20 percent when both apply, under 13 CFR 120.910.
Where the borrower is a holding company, the operating practice's age is the one tested. The rest of the stack is set by 13 CFR 120.920: the project must include Third Party Loans, usually a bank first mortgage, totaling at least as much as the 504 loan, and at least 50 percent of total project cost when the practice has operated two years or less or the project is a limited or single purpose asset. Whether a particular medical or dental building counts as limited or single purpose is an underwriting call; ask the CDC early, because it moves the equity requirement by 5 percentage points.
Hypothetical example: a $2,000,000 project covering the purchase, build-out and qualifying equipment for a practice that has operated for six years. The bank's first mortgage is $1,000,000, the 504 loan is $800,000 and the practice contributes $200,000. The same project for a practice that opened 18 months ago needs at least $300,000 of equity. The contribution is measured on project cost excluding administrative costs under 13 CFR 120.910, and SOP 50 10 8.1 adds eligible administrative costs to the gross debenture and lists the fees a 504 borrower may be charged, so ask the CDC for its fee schedule.
The 504 limit sits on the 504 piece. 13 CFR 120.931 sets an outstanding balance of $5,000,000 for each borrower and its affiliates for most projects, and $5,500,000 for each project for small manufacturers and certain energy projects. SBA's 504 page states a maximum 504 loan amount of $5.5 million. A practice is not a manufacturer, so unless the project qualifies under the regulation's energy provisions, such as cutting the practice's energy consumption by at least 10 percent, plan around the regulation's general figure and confirm the current treatment with the CDC under SOP 50 10 8.1.
How does SBA 504 compare with 7(a), a bank loan and a credit union for a practice owner?
SBA 504 pairs a 10 percent minimum contribution with a debenture rate pegged above 10-year Treasuries, 7(a) adds room for a change of ownership and working capital, and bank or credit-union loans close on their own policy terms, so the choice turns on the practice's equity, its timing and what else the loan must pay for.
Rate levels move daily, so the table compares how each route is set, not today's quotes.
| Route for a practice buying its building | Down payment or contribution | Rate basis | Term | Prepayment |
|---|---|---|---|---|
| SBA 504 (bank first mortgage plus CDC loan) | At least 10%; 15% if the practice has operated two years or less or the building is limited or single purpose; 20% if both | 504 portion pegged to an increment above the 10-year Treasury; bank portion priced by the bank | 504 portion 10, 20 or 25 years; bank loan at least 7 years beside a 10-year 504 loan and 10 years beside a 20-year one | Bank note terms; ask the CDC for the 504 schedule |
| SBA 7(a) | Set by the lender within SBA rules; $5,000,000 maximum loan | Lender rate within SBA maximums | Up to 25 years including extensions for real estate | Fee of 5%, 3% and 1% in years one to three when more than 25% of the highest balance is prepaid on a loan of 15 years or more |
| Conventional bank loan | Bank policy; an 85% supervisory loan-to-value limit applies to improved property, which a bank may exceed for a limited share of its loans | Bank's own pricing | Bank policy | Bank note terms |
| Credit union business loan | Credit union policy | Credit union's own pricing | Credit union policy | Credit union note terms |
Dated: SBA figures read from 13 CFR 120.131, 120.151, 120.212, 120.223, 120.910, 120.920 and 120.921 (January 1, 2025 edition) and SBA's 504 and 7(a) pages on October 6, 2026; the bank supervisory limit read from the appendix to 12 CFR part 34, subpart D, the same day. Bank and credit-union rows describe the mechanism, not a quoted term.
The mechanism behind the table: under 13 CFR 120.921 the bank's first mortgage cannot carry an early call or demand feature unless it is in default, which protects a practice from a bank pulling the loan mid-term. A conventional loan has no such floor; its equity, term and balloon are whatever the lender's policy and your negotiation produce. For the broader comparison, see owner-occupied commercial real estate loans.
How do you finance buying a practice and its building together?
When a buyer acquires both a practice and its building, the deal often splits into two loans, with an SBA 7(a) loan funding the business purchase and working capital and a 504 or conventional loan funding the real estate, because 504 proceeds cannot pay for working capital or inventory.
SBA's 7(a) page lists changes of ownership, real estate and multiple-purpose loans among eligible uses, so a single 7(a) loan can cover both when the total fits under the $5,000,000 maximum. Two caps apply under 13 CFR 120.151: the SBA portions of all loans to one borrower and its affiliates cannot exceed a guaranty amount of $3,750,000 except as a statute authorizes for a specific program, and loans to a passive real-estate company count against the limits of both it and the operating practice. Splitting the building into a 504, which has its own limits under 13 CFR 120.931, keeps the building out of the 7(a) loan's ,000,000 maximum. SOP 50 10 8.1 tells a 7(a) lender to include any existing 7(a) or 504 loans when it calculates the maximum guaranty, so ask the lender and the CDC how the two loans will be counted together.
Two questions to settle with the CDC before signing the purchase agreement: how the practice's operating history is measured when it is changing hands, since a two-year-or-less history raises the contribution to 15 percent, and whether the seller's lease or a new lease from your holding company will satisfy the lease conditions above. The specialist page on medical office financing covers the property side.
Buying the building your practice leases? What a lender will ask
A lender will ask for the signed purchase contract, the practice's recent financial statements and tax returns, the proposed lease between your real-estate company and the practice, a floor plan showing occupancy, and a build-out and equipment budget before it sizes a 504, 7(a) or conventional loan for the building.
Add personal financial statements for every owner of 20 percent or more of either entity, the current lease if you are buying from your landlord, and a list of any other tenants with their square footage. A complete package lets the bank and CDC lender types quote against the same facts.
YieldStack is a commercial mortgage brokerage, not a lender. It costs Zero upfront to submit a deal and review offers; YieldStack's broker fee is 0.50–1.00% of the loan amount and is paid only at closing. Every credit decision is made by the lender; YieldStack arranges the introductions and negotiates on the borrower's side, and no loan, rate, or closing is guaranteed. Submit your practice building purchase and the deal team will route it to the SBA, bank and credit-union lender types whose current programs fit an owner-occupied practice building.
The bottom line
Yes, a medical or dental practice can buy its building with an SBA 504 loan. The practice must occupy at least 51 percent of an existing building or 60 percent of new construction, contribute 10 percent or more of the project (15 to 20 percent for a newer practice or a limited or single purpose building), and, if a holding company owns the building, sign a subordinate lease that runs at least as long as the loan, with every 20 percent owner guaranteeing it. Put long-life build-out and equipment inside the 504, keep goodwill and working capital in a 7(a), and check the occupancy math before you sign the contract.