Verify the operating business, entity structure, building category and occupancy timeline separately. Passing a floor-area percentage does not establish that a business or financing request is eligible.
“The business occupies enough space” is an incomplete SBA eligibility conclusion. A sound review separates the operating business, the ownership and lease structure, the use of proceeds, the building category and the occupancy timeline. Each needs its own evidence and controlling source.
This reference shows how to audit the claim before an investor relies on an SBA exit or acquisition plan. It does not replace a participating lender’s complete program review or imply that a floor-area calculation creates an approval.
Build an applicability matrix
Use the current SBA SOP document register to identify the relevant procedure version and check for later notices. On the research date, the register listed version 8.1 with Technical Updates, effective October 1,2026. The register establishes that metadata; the actual procedure and applicable changes still need to be read for a specific transaction.
| Question | Starting authority | Transaction evidence |
|---|---|---|
| Is this a passive investment business? | 120.110(c) | Actual business activities, repayment sources and use of assets |
| Does an eligible-passive-company structure apply? | 120.111 | Entity chart, operating-company eligibility, lease and required obligations |
| Existing building or new construction? | 120.131(a)–(b) | Scope, plans and lender-confirmed transaction classification |
| What area is occupied and when? | Applicable rule and current procedures | Measured space schedule, actual use, leases and implementation dates |
| What remains beyond occupancy? | Applicable program procedures and lender review | Eligible uses, credit, ownership and other required evidence |
Write a separate conclusion for each row. A passing answer in one row must not automatically populate the others as approved.
Read the entire occupancy provision
120.131 distinguishes existing-building acquisition, renovation or reconstruction from new-building construction. The existing-building provision uses at least 51% occupancy and limits permanent third-party leasing to 49%. The new-construction provision combines at least 60% occupancy, a 20% permanent-leasing limit and plans for additional occupancy within three and ten years. The corresponding operating-company rules also apply in an eligible-passive-company structure.
The new-building rule therefore cannot be reduced to “60% at some future stabilization date.” Retain the actual wording, timing and procedural requirements in the evidence packet, and obtain confirmation of how they apply to the proposed project. Do not substitute an informal business plan for a required occupancy commitment.
Worked example: why a percentage does not complete the file
Assume a hypothetical new 30,000-square-foot building. The proposed operating company will use 18,000 square feet, permanently lease 6,000 to a third party, and reserve 6,000 for its own expansion. Assume these are the accepted rentable-area measures solely for this illustration.
| Area allocation | Square feet | Share | Additional evidence needed |
|---|---|---|---|
| Operating-company use | 18,000 | 60% | Actual use, readiness and applicable occupancy timing |
| Permanent third-party lease | 6,000 | 20% | Executed terms and area reconciliation |
| Reserved expansion space | 6,000 | 20% | Credible dated occupancy plan and required lender/program confirmation |
The arithmetic matches the 60% and 20% figures, but the remaining 6,000 square feet are not an administrative footnote. Suppose the business plans to occupy 1,500 additional square feet within three years and the remaining 4,500 within ten years. That proposal addresses the timeline categories in the rule; it still requires factual support, procedural review and confirmation of compliance.
Now change one fact: the business has no identified use for the reserved area and expects to lease it indefinitely. The initial 60% calculation remains identical, but the evidence no longer supports the same proposed occupancy plan. A model that displays only a green percentage cell would miss the unresolved condition.
Entity labels do not establish eligibility
120.110(c) addresses passive businesses and points to an exception with conditions in 120.111. A property LLC leasing to an operating company needs a complete review of those conditions. The presence of common owners or an intercompany lease is not sufficient by itself.
Map the legal borrower, property owner, operating companies, owners and proposed guarantors. Identify which business actually occupies each space and generates repayment cash. Keep the lease, entity chart and occupancy schedule consistent. If different documents name different entities, resolve the discrepancy before representing the structure as eligible.
Do not count a person’s residential occupancy as operating-business use merely because that person owns the company. A proposed mixed-use or live-work arrangement needs specific program and lender analysis. A marketing article or an unlabeled floor plan cannot establish the treatment.
Keep measurement and authority separate
A floor plan supports physical area. A lease supports rights and obligations. Business records support actual operations. The rule and applicable procedures establish how those facts are evaluated. None of these documents substitutes for all the others.
Preserve the calculation’s numerator and denominator, measurement source, date and treatment of shared or disputed areas. If the accepted measurement changes, recalculate and record the effect. Do not adjust an area allocation solely to make the percentage pass.
State the result as a verified conclusion or an open condition
A useful review note might say: “Proposed new-building allocation is 18,000/30,000 square feet, or 60%; expansion timeline, accepted area definition and operating-company eligibility remain subject to documented review.” That communicates the completed arithmetic without overstating approval.
Before committing to a bridge-to-SBA strategy, identify every unresolved eligibility and execution condition, its owner and the decision deadline. An SBA assumption should remain a conditional exit until the actual program, business and transaction evidence support it.
Sources and evidence
- 13 CFR 120.131 — Leasing part of a buildingParagraphs (a) and (b) · Checked 2026-10-21 · Existing-building and new-construction occupancy rules for 7(a)/504. Does not by itself establish eligibility.
- 13 CFR 120.110 — Ineligible businessesParagraph (c) · Checked 2026-10-21 · Passive-business exclusion expressly points to the Eligible Passive Company exception.
- 13 CFR 120.111 — Eligible Passive Company conditionsOpening paragraphs and (a)(1)–(6) · Checked 2026-10-21 · Related property and operating entities require a complete conditions review; entity formation alone is insufficient.
- SBA — SOP 50 10 document registerCurrent document and variations table · Checked 2026-10-21 · Landing page directly inspected: version 8.1 with Technical Updates effective October 1, 2026. Download could not be inspected in this research pass; no procedural claim is attributed to its body.
Source dates and applicability matter. Report an error or a changed source.