Can You Buy a House With a Business Loan?

It is possible to purchase a property using a business loan, but this depends entirely on the property’s intended use. A business loan is designed to finance commercial activities, not personal ones. Therefore, a “house” can be acquired with a business loan only if it serves a legitimate, primary business purpose.

Business Loans and Real Estate Ownership

A business loan funds operations, expansion, or asset acquisition for commercial endeavors. These loans differ from personal mortgages, which are for an individual’s primary residence and personal housing needs.

The primary distinction lies in the borrower and purpose; a business loan is issued to a legal entity, such as an LLC or corporation, for business-related objectives, while a personal mortgage is for an individual’s residential use. Interest rates for business loans are higher than personal mortgages, reflecting increased risk.

Repayment terms for business loans are shorter, ranging from a few months to several years, compared to decades-long terms of residential mortgages. A “house” can qualify for a business loan if its primary use is demonstrably business-related.

This means the property must directly support the business’s functions or generate income as part of the business model. For instance, if a property is purchased to house business operations or as a rental investment, it can be considered a business asset eligible for commercial financing.

Property Types and Business Loan Applicability

Commercial properties, such as office buildings, retail storefronts, or warehouses, are standard candidates for business loans due to their inherent commercial nature. Financing for these properties often involves commercial mortgages, tailored to their unique characteristics and income-generating potential.

Mixed-use properties, which combine commercial and residential components, also qualify for business loans. For example, a building with ground-floor retail space and residential units above can be financed if the commercial portion is substantial.

Lenders require that a significant percentage, often 51% or more, of the property’s square footage be dedicated to the business’s operations. Residential properties are eligible for business loans if their use is strictly for business purposes, not as a personal residence.

Properties acquired as rental investments, whether for long-term tenants or short-term vacation rentals, often qualify, as the rental activity is considered a business venture. A residential-style property used as an operational base for a business, such as a home office, workshop, or clinic where business functions are primary, can be financed.

Properties purchased for business-related development, renovation, and subsequent resale, commonly known as house flipping, are also candidates for specific business loans like fix-and-flip loans, which cover both acquisition and renovation costs.

Criteria for Business Property Loan Approval

Securing a business loan for property requires demonstrating the business’s financial health and a clear, viable plan for the property’s use. A detailed business plan is essential, outlining how the property will generate income or support core business operations.

This plan should include projections of revenue, expenses, and how the property contributes to the business’s overall profitability. The financial health of the business is another important component.

Lenders will scrutinize financial statements, including profit and loss statements, balance sheets, and cash flow statements, for the past two to three years. A strong business credit history, sufficient revenue, consistent profitability, and manageable existing debt are all important indicators that lenders consider.

A good business credit score, often in the 600s or higher, is expected. Lenders also require a down payment, ranging from 10% to 30% of the property’s value.

Some government-backed loans like certain SBA 504 loans may allow for lower down payments, such as 10%. The property being financed will serve as collateral for the loan, providing the lender with security.

Additionally, many business loans, particularly for smaller businesses or those with limited operating history, require personal guarantees from the business owner(s). This means the owner’s personal assets, such as their home or savings, could be at risk if the business defaults on the loan.