SBA rules · SOP 50 10 8.1

What lease does a business need for an SBA loan?

SBA requires written leases with terms that equal or exceed the loan term whenever leasehold improvement or collateral thresholds are met, as well as in all Eligible Passive Company (EPC) and Operating Company (OC) arrangements.

Quoted from SBA SOP 50 10 8.1Every quote checked word for word

In detail

Third-party lease term and landlord waiver: When a borrower operates in leased space and $500,000 or 30% of loan proceeds (whichever is less) will be used for leasehold improvements, or when $500,000 or 30% of collateral consists of leasehold improvements, fixtures, machinery, or equipment attached to leased real estate, the lender must obtain a written lease whose term (including renewal options exercisable solely by the borrower) equals or exceeds the loan term, and an assignment of lease and landlord waiver should be obtained.
Failure to obtain third-party waiver: If the lender cannot obtain an assignment of lease or landlord waiver, the lease term (including borrower-only renewal options) must still equal or exceed the term of the loan, and the lender must document its attempt to obtain them and the reasons for not obtaining them in the file.
EPC/OC lease term and subordination: The EPC must lease the property directly to the OC under a fully executed written lease with a term (including renewal options exercisable solely by the OC) at least equal to the term of the loan, and the lease must be subordinated to SBA's lien on the property.
EPC/OC rent limit and assignment of rents: The EPC must furnish an assignment of all rents paid under the lease as collateral, and rent payments cannot exceed the amount required to make the loan payment plus direct property holding expenses such as routine maintenance, utilities, insurance, and taxes.

The source

What the SOP says

“The SBA Lender must obtain a copy of the written lease between the Borrower and the landlord. For 7(a) loans, the lease term, including renewal options exercisable only by the Borrower, should equal or exceed the term of the loan. For 504 loans, the lease term must equal or exceed the term of the loan. An assignment of lease and Landlord’s waiver should be obtained.

SOP 50 10 8.1, Chapter 3: Uses of Proceeds > Responsibilities When the Borrower is Leasing Space (lines 839-845)✓ Verified

“If the SBA Lender is unable to obtain the assignment of lease or landlord’s waiver, for both 7(a) and 504 loans, the lease term, including renewal options exercisable only by the Borrower, must equal or exceed the term of the loan. Additionally, the SBA Lender must document in its file its attempt to obtain the assignment and the landlord’s waiver and the reason(s) for not obtaining them.

SOP 50 10 8.1, Chapter 3: Uses of Proceeds > Responsibilities When the Borrower is Leasing Space (lines 839-845)✓ Verified

“The lease must be subordinated to the SBA’s mortgage, trust deed lien, or security interest on the property (Note: This is not the same as a Landlord’s Waiver);

SOP 50 10 8.1, Chapter 2: Special Transaction Structures > Conditions that apply to all EPCs: (lines 660-673)✓ Verified

“The lease must have a term, including options to renew exercisable solely by the OC(s), at least equal to the term of the loan;

SOP 50 10 8.1, Chapter 2: Special Transaction Structures > Conditions that apply to all EPCs: (lines 660-673)✓ Verified

“The rent or lease payments cannot exceed the amount necessary to make the loan payment to the Lender and an additional amount to cover the EPC’s direct expenses of holding the property, such as routine maintenance, utility expenses, insurance, and property taxes.

SOP 50 10 8.1, Chapter 2: Special Transaction Structures > Conditions that apply to all EPCs: (lines 660-673)✓ Verified

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