The quick read: A commercial real estate loan counts as owner-occupied when its primary source of repayment is cash flow from the business operations of the property's owner, or an affiliate of that owner. In the definition banks use for their Call Reports, rent from unrelated tenants must be less than 50 percent of the source of repayment. The label matters because federal concentration guidance leaves owner-occupied loans out of the commercial real estate total that examiners screen at 300 percent of a bank's capital. SBA loans run a space test instead: 51 percent occupancy of an existing building, 60 percent of new construction.
Bank test, owner-occupied (FFIEC Call Report instructions, Schedule RC-C): repayment comes mainly from the ongoing operations of the owner or an affiliate of the owner
Bank test, rent line (FFIEC Call Report instructions, Schedule RC-C): unrelated third-party rent below 50 percent of the source of repayment
Concentration screen (2006 interagency guidance): non-owner-occupied CRE at 300 percent or more of total capital, with the CRE portfolio up 50 percent or more over the prior 36 months
SBA existing building (13 CFR 120.131): borrower occupies at least 51 percent of the rentable property
SBA new construction (13 CFR 120.131): borrower occupies at least 60 percent of the rentable property
Timing (FFIEC Call Report instructions): the bank makes the determination when it originates or buys the loan
This page answers the classification test itself. For how terms differ once a loan is classified, read owner-occupied vs investment property commercial loans; for the product view, see owner-occupied commercial real estate loans.
What makes a commercial real estate loan owner-occupied?
A commercial real estate loan is owner-occupied when cash flow from the ongoing business operations of the property's owner, or an affiliate of that owner, is the primary source of repayment, rather than rent from unrelated tenants or the proceeds of selling or refinancing the building. Banks use that definition when they report the loan to regulators.
The FFIEC's instructions for Schedule RC-C of the Call Report (September 2023 instruction book) define loans secured by owner-occupied nonfarm nonresidential properties as loans repaid primarily from the ongoing operations and activities conducted by the party, or an affiliate of the party, who owns the property. The same paragraph names two sources that cannot carry the loan: third-party, nonaffiliated rent, which must stay under 50 percent of the source of repayment, and the proceeds of a sale, refinancing or permanent financing of the property. The second exclusion is easy to miss. A plan to repay by selling the building is an investor's plan, even if your business occupies it today.
The instructions also sort property types. Hospitals, golf courses, recreational facilities and car washes are owner-occupied unless an investor owns the property and leases it to an unrelated operator, and a church is owner-occupied unless an investor leases it to the congregation. Hotels, motels, dormitories, nursing homes, assisted-living facilities and mini-storage are reported as non-owner-occupied, although a nursing home or assisted-living facility can be reported as owner-occupied when 50 percent or more of repayment comes from operations, such as medical or maintenance services, conducted by the owner or an affiliate.
Two scope points follow. The owner-occupied split exists only for nonfarm nonresidential property: loans on apartment buildings of five or more units go on a separate multifamily line, which the OCC's Comptroller's Handbook counts in the non-owner-occupied CRE total. And the bank decides the question when it originates or purchases the loan; the instructions say the determination need not be reviewed thereafter.
How much of the building can you lease out and still be owner-occupied?
For a bank loan, you can lease space to unrelated tenants as long as their rent stays below 50 percent of the loan's source of repayment, because the bank test counts repayment dollars rather than square feet. The OCC's handbook says a partly leased property is non-owner-occupied once 50 percent or more of its repayment comes from unaffiliated income.
So the share of the floor you occupy is a proxy at best. A business using 45 percent of a building can be owner-occupied when its tenants pay modest rent, and one using 55 percent can fail when the leased space is high-rent frontage. Neither source prescribes the arithmetic, so ask each lender how it measures the share; the example below compares unrelated rent with annual debt service.
Illustrative example (our arithmetic): each building is owned directly by the operating business and carries an assumed $190,000 of annual debt service, and the business covers whatever its tenants' rent does not from operating cash flow.
Table: three owner-user buildings under the bank test and the SBA test (illustrative)
| Line | Building A | Building B | Building C |
|---|---|---|---|
| Line Space the business occupies | Building A 60% | Building B 55% | Building C 45% |
| Line Space leased to unrelated tenants | Building A 40% | Building B 45% | Building C 55% |
| Line Unrelated tenants' annual rent | Building A $76,000 | Building B $104,500 | Building C $57,000 |
| Line Unrelated rent as a share of $190,000 debt service | Building A 40% | Building B 55% | Building C 30% |
| Line Bank class on that measure | Building A Owner-occupied | Building B Non-owner-occupied | Building C Owner-occupied |
| Line SBA existing-building test (51% occupied) | Building A Passes | Building B Passes | Building C Fails |
Building B is the trap. The business occupies more than half the space and clears the SBA's existing-building line, yet its retail tenants pay 55 percent of the debt service, so on that measure a bank would report the loan as non-owner-occupied. Building C is the reverse: owner-occupied for a bank, short of the SBA's 51 percent.
Affiliate leases work in your favor. Many owners hold the building in a property company that leases it to their operating company, and because the Call Report definition counts operations conducted by an affiliate of the owner, that rent is not third-party, nonaffiliated rent. The OCC's handbook names this structure and warns that rents used for valuation should be consistent with the market, to avoid relying on rates that were not set at arm's length and may be inflated. Price the lease at market, put it in writing and document the common ownership.
Why do banks care whether a commercial loan is owner-occupied?
Banks care because the federal concentration guidance counts non-owner-occupied commercial real estate loans against capital and leaves owner-occupied loans out, so the label decides whether your loan adds to the total examiners screen. A bank whose total reaches 300 percent of capital after fast portfolio growth may draw further supervisory analysis.
The agencies' 2006 guidance on concentrations in commercial real estate lending, published in the Federal Register on December 12, 2006, set two screens. One is construction, land development and other land loans at 100 percent or more of total capital. The other is total commercial real estate loans, as the guidance defines them, at 300 percent or more of total capital, with the CRE portfolio up 50 percent or more over the prior 36 months. The final guidance says its focus is loans where cash flow from the real estate collateral is the primary source of repayment, rather than loans where real estate is a secondary source.
The OCC's Comptroller's Handbook on commercial real estate lending (Version 2.0, March 2022) restates both screens, counts construction, multifamily and other nonfarm nonresidential loans in the non-owner-occupied total (plus loans to finance CRE that are not secured by real estate, reported in a Call Report memorandum item), and states that owner-occupied commercial properties are not included when measuring CRE concentrations. It adds that the criteria are not CRE lending limits, and that a troubled owner-occupied credit that comes to rely on its collateral can still add to a bank's concentration risk.
The FDIC reports the non-owner-occupied bucket separately. In its statement on second quarter 2026 results (August 25, 2026), it said the past-due and nonaccrual rate on non-owner-occupied CRE loans at banks with more than $250 billion in assets fell for the seventh consecutive quarter to 3.08 percent, below the 4.99 percent peak of the third quarter of 2024 but well above the pre-pandemic average of 0.59 percent. It added that these large banks hold lower concentrations of such loans relative to assets and capital than smaller banks; the statement's chart puts the rate at 1.10 percent for banks with $1 billion to $10 billion in assets and 1.48 percent for $100 million to $1 billion. For scale, FDIC-insured institutions held $1,943,158 million of nonfarm nonresidential loans in total, the Call Report line that sums owner-occupied and other (FDIC Quarterly Banking Profile series on FRED, observation dated 2026-04-01, second quarter 2026).
The practical point: ask at the first conversation how the bank will classify your loan, and whether its concentration position affects how it treats a non-owner-occupied request.
How does the SBA occupancy test differ from the bank test?
The SBA test measures occupied space rather than repayment dollars: under 13 CFR 120.131, a borrower buying or renovating an existing building must occupy and use at least 51 percent of the rentable property, and a borrower financing new construction must occupy at least 60 percent, so one building can pass one test and fail the other.
For an existing building, the borrower may permanently lease up to 49 percent. For new construction, it may permanently lease up to 20 percent and must plan to occupy some of the remaining space within three years and all space not permanently leased within ten. The rule covers 7(a) and 504 financing alike.
The SBA has its own affiliate lease. An Eligible Passive Company can own the real estate and lease it to one or more Operating Companies (13 CFR 120.111); under 120.131, when it leases the whole building to them, the Operating Companies together must meet the occupancy rule. The lease must be in writing and subordinate to SBA's lien, with rents assigned as collateral; rent cannot exceed the loan payment plus direct holding costs such as maintenance, insurance and property taxes; and the lease term, with renewal options only the Operating Company can exercise, must at least equal the loan term. The Operating Company must be a guarantor or co-borrower, and each holder of 20 percent or more of either company must guarantee the loan. For the 504 down payment, see SBA 504 down payment and owner-occupancy rules.
Table: how the owner-occupied, investor and SBA tests compare
| Attribute | Owner-occupied (bank test) | Investor, non-owner-occupied (bank test) | SBA 7(a) and 504 |
|---|---|---|---|
| Attribute What is measured | Owner-occupied (bank test) Source of repayment | Investor, non-owner-occupied (bank test) Source of repayment | SBA 7(a) and 504 Share of rentable space the borrower occupies |
| Attribute Primary repayment source | Owner-occupied (bank test) Operations of the owner or an affiliate | Investor, non-owner-occupied (bank test) Unrelated rent, or sale or refinance proceeds | SBA 7(a) and 504 The occupying operating business |
| Attribute Leasing line | Owner-occupied (bank test) Unrelated rent under 50% of repayment | Investor, non-owner-occupied (bank test) Unrelated rent at 50% or more | SBA 7(a) and 504 Up to 49% of space leased (existing building) |
| Attribute Rent from your own operating company | Owner-occupied (bank test) Counts as affiliate operations | Investor, non-owner-occupied (bank test) Not the main source | SBA 7(a) and 504 Allowed through an Eligible Passive Company |
| Attribute In the 300% concentration total | Owner-occupied (bank test) No | Investor, non-owner-occupied (bank test) Yes | SBA 7(a) and 504 Depends on the lending bank's Call Report test |
| Attribute Source | Owner-occupied (bank test) FFIEC Call Report, Schedule RC-C | Investor, non-owner-occupied (bank test) Call Report and OCC handbook | SBA 7(a) and 504 13 CFR 120.131 and 120.111 |
What should an owner-user document before applying for an owner-occupied loan?
Before you apply, document the repayment split the lender will classify: the operating company's financial statements and tax returns, every lease in the building, the common ownership behind any affiliate lease, and the rent unrelated tenants pay against the proposed debt service. The bank makes that call when it originates the loan, so the file has to show it.
What to assemble:
- Operating company financial statements and business tax returns
- The lease between your property company and your operating company, at market rent, with an ownership chart showing the affiliation
- A rent roll and every third-party lease, with expiration dates
- A one-page calculation of unrelated rent against the proposed annual debt service
- For an SBA request, rentable square footage by occupant
Timing matters most if your current loan matures in the next 6 to 12 months and you have added tenants since you bought. A refinance originates a new loan, and the instructions tie the classification to origination, so the new lender reads today's rent roll, not the one you had at purchase.
How do you get an owner-occupied commercial real estate loan placed?
Option 1, and our recommendation, is a commercial mortgage brokerage that documents the repayment split before any lender sees the file, then compares bank and SBA routes side by side, because each route applies its own occupancy test. YieldStack is an AI-native commercial mortgage brokerage that arranges financing for commercial real estate investors.
Option 1: a commercial mortgage brokerage (our pick). We put it first for three reasons. The label is set at origination from the file the lender reads, so the affiliate lease, the rent roll and the operating company's cash flow should show the split before the first lender sees it. The bank's repayment test and the SBA's space test can disagree on the same building, as Building B shows, and comparing both routes up front beats learning in underwriting that one fails. And the terms that follow the label, such as guarantees, the affiliate lease and recourse, are negotiable. YieldStack's software matches the deal against 20,000+ loan programs, and the median first offer arrives in under an hour, from an institutional lender. Human brokers then structure the request, negotiate for the borrower and carry the deal toward closing.
Option 2: go straight to your own bank. A bank that holds your operating accounts already knows the business cash flow. Ask at the start how it will classify the loan.
Option 3: go directly to an SBA lender. If your occupancy clears 51 percent of an existing building, or 60 percent of new construction, an SBA lender can run the request. Confirm the Eligible Passive Company lease and guarantee requirements first.
When the file is ready, send your owner-occupied deal for review. 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.
The bottom line
Owner-occupied is a repayment test before it is a space test. For a bank, the loan is owner-occupied when your business, or an affiliate, repays it from operations and unrelated rent stays below 50 percent of the repayment source, which keeps it out of the non-owner-occupied total regulators screen at 300 percent of capital. The SBA asks whether you occupy 51 percent of an existing building or 60 percent of a new one. Run both tests on your numbers, document any affiliate lease at market rent, and if your loan matures within a year, rerun the split on today's rent roll.