Fix and Flip a Multifamily Property: How to Use Business Funding
Purchase, rehab and exit each need different money. Here is how the stack is normally built, what lenders cap it at, and where business funding helps and hurts.
Sep 20, 2026Read
Commercial real estate financing splits into two different worlds. If you will occupy the building, government-backed programmes give you long terms and small down payments. If you are buying it as an investment, the property's own income decides the deal. This guide covers both, with the ratios, terms and costs lenders work to in 2026.
Owner-occupied vs investment
Owner-occupied means your business uses at least 51% of the space. That unlocks SBA 504 and 7(a), which exist specifically to help operating businesses own their premises.
Investment property is bought to lease out. Here lenders underwrite the rent roll rather than your business, using DSCR loans, conventional commercial mortgages or agency debt for larger multifamily.
The main options
SBA 504 — the cheapest way to buy your own building
A three-part structure: a bank provides about 50%, a Certified Development Company provides about 40% at a long-term fixed rate, and you contribute around 10% (15–20% for start-ups or special-purpose property). CDC debenture pricing in September 2026 sat around 6.54–6.61% fixed, with blended effective rates roughly 7–8%. Terms run 10, 20 or 25 years, and the CDC portion goes up to $5 million, or $5.5 million for small manufacturers and energy-efficient projects.
SBA 7(a) for real estate
Up to $5 million with terms up to 25 years for real estate. Variable-rate ceilings in October 2026 ran from 10.00% for loans over $350,000 to 13.50% for the smallest loans, and lenders commonly price below the ceiling. More flexible than 504 — it can combine property, working capital and even business acquisition in one facility.
Conventional commercial mortgage
Bank or credit union debt, typically 20–30% down, 5–10 year terms with a 20–25 year amortisation, and a balloon at the end. Faster and less paperwork than SBA, but more equity and often a shorter commitment.
DSCR loans for investment property
Qualification rests on the property's debt service coverage ratio rather than your personal income. Most lenders want 1.20–1.25x, with LTV around 65–80%. Rates in late 2026 generally ran 9–13% depending on the sponsor, property and market.
Bridge loans
Short-term financing at roughly 9–12%, 65–80% LTV, 6–24 month terms with one to two points, used while repositioning a property before permanent financing. See fix and flip multifamily.
The two ratios that decide your deal
Loan to value (LTV). Loan divided by appraised value. Owner-occupied SBA can reach 90%; conventional usually caps at 70–80%; investment property typically 65–75%.
Debt service coverage ratio (DSCR). Net operating income divided by annual debt service. Most lenders require 1.20–1.25x. On a property with $120,000 net operating income, a 1.25x requirement means annual debt service cannot exceed $96,000.
Both are tested. Whichever binds first sets your maximum loan.
What lenders ask for
- Purchase contract and property details
- Rent roll and leases, or a projection for owner-occupied space
- Three years of business tax returns and financial statements
- Personal financial statement and tax returns for owners of 20%+
- Appraisal, environmental report (Phase I where required), survey and title
- Entity documents and proof of insurance
Costs beyond the down payment
Budget 3–5% of the loan amount for closing: appraisal ($2,000–$5,000+), environmental assessment, title and legal, lender origination, and for SBA loans the guaranty fee — 2% to 3.75% of the guaranteed portion depending on size in FY2027, with 0.50% on the 504 CDC portion and waivers for some manufacturers, rural and food supply chain borrowers.
Timelines
- Bridge: 1–3 weeks
- DSCR: 3–5 weeks
- Conventional: 30–60 days
- SBA 504 / 7(a): 45–90 days
Order the appraisal and environmental report early — they are almost always the critical path.
Owning vs leasing your premises
Owning converts rent into equity, fixes your largest fixed cost for decades and can produce a second income stream if you lease surplus space. It also ties up capital, adds maintenance responsibility and reduces flexibility if the business outgrows the building. The honest test: if the mortgage payment is close to the rent and you plan to stay 7–10 years, ownership usually wins.
Frequently asked questions
How much down payment do I need?
Roughly 10% with SBA 504 for owner-occupied property, 20–30% conventional, and 20–35% for investment property depending on DSCR.
Can I use an SBA loan for a property I will partly rent out?
Yes, provided your business occupies at least 51% of an existing building (60% for new construction, rising over time). The rest can be leased.
What if the appraisal comes in low?
Your loan is sized on the lower of price and appraised value, so you either bring more cash, renegotiate the price, or walk. Build an appraisal contingency into the contract.
Are SBA rates fixed or variable?
7(a) is commonly variable against Prime, with fixed options priced off Prime or the SBA Optional Peg Rate (5.00% for Q4 2026). The 504 CDC portion is fixed for the life of the loan, which is its main attraction.
Rates and fee figures reflect published data as of October 2026 and change regularly.
Worked example: SBA 504 vs conventional on a $1.2M building
| SBA 504 | Conventional | |
|---|---|---|
| Purchase price | $1,200,000 | $1,200,000 |
| Down payment | 10% — $120,000 | 25% — $300,000 |
| Structure | $600,000 bank + $480,000 CDC | $900,000 single loan |
| Rate | Bank portion around 7–8%, CDC portion fixed around 6.6% | Around 7.5% fixed for 5 years |
| Amortisation | 25 years | 25 years with a balloon at year 5–10 |
| Upfront fees | CDC fee 0.50% plus closing costs | Origination plus closing costs |
The 504 keeps $180,000 more of your cash in the business and fixes a large slice of the rate for the life of the loan. The conventional loan closes faster and has fewer conditions, but exposes you to refinancing risk at the balloon. For an owner who plans to stay ten years or more, that fixed CDC portion is usually the deciding factor.
How net operating income is calculated
NOI is gross rental income, minus vacancy allowance, minus operating expenses — taxes, insurance, maintenance, management, utilities and reserves. It excludes debt service, depreciation and owner distributions. Lenders will apply their own vacancy factor (commonly 5–10%) and a management fee (commonly 3–5%) even if you self-manage, so your NOI is almost always lower on their spreadsheet than on yours.
If your DSCR comes in just under the requirement, the levers are a larger down payment, a longer amortisation, a lower price, or verified rent increases — in that order of practicality.
Common reasons CRE deals fall apart
- Environmental findings. A Phase I that triggers a Phase II adds weeks and can kill financing on former fuel, dry cleaning or industrial sites.
- Appraisal below contract. Build in a contingency and keep renegotiation on the table.
- Lease quality. Month-to-month tenants or leases with no personal guarantees reduce the income lenders will count.
- Occupancy rules. For owner-occupied SBA deals, you must meet the 51% threshold at closing, not later.
- Title and survey issues. Easements and encroachments are slow to clear — order early.
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