SBA 7(a) Flex Space Feasibility Study

A lessor record that nearly ends in FY2024

This page covers nonresidential lessors: owners who lease flex, office and retail buildings to others. The 7(a) program approved 1,486 such loans from FY2017 to FY2026, worth $1.40 billion, but the trend matters more than the total. Approvals ran at 196 loans and $141.5 million in FY2017, peaked at 321 loans and $325.2 million in FY2021 and stood at 179 in FY2023. Then they nearly stopped: 29 loans and $43.4 million in FY2024, 6 loans and $1.3 million in FY2025, and 20 loans and $3.7 million in FY2026. SBA treats most businesses that lease property to others as passive and ineligible, and from FY2024 its lending to this class all but ends, so almost everything on this page is an older loan. No headline figure here is an outlier beside 7(a) overall or the class across programs.

What the older flex loans show

The median loan is $597,000, and half fall between $263,875 and $1.3 million. Cancellation was high: at least 16.2% of the lessor approvals of FY2017 through FY2024 were cancelled, and the ceiling is 16.3%. Funded loans performed well, with a charge-off floor of 0.82% across 853 loans disbursed in FY2017 to FY2021 and 0.59% failing inside five years. Franchised borrowers account for 5.7%. Enterprise Bank & Trust holds 98 of these lessor loans worth $116.6 million, Wells Fargo Bank National Association 89 worth $92.6 million and Harvest Small Business Finance, LLC 55 worth $88.6 million, with The Huntington National Bank at 43 and Manufacturers and Traders Trust Company at 39. California has 218 loans and Texas 125, followed by Ohio with 64, Minnesota with 62, and Colorado and Florida with 58 each. In this data, flex space is grouped with office and retail lessors; banquet hall rental also sits under that code.

What a flex building study must test now

For a borrower today, the first question is eligibility, not feasibility. A building held to lease to unrelated tenants will usually not qualify for 7(a); the workable structure is one in which an operating business occupies most of the building and a related holding company owns it, and the study should show that occupancy plainly. Demand then has two parts: the operating company's own need for the space, and the market for any part it leases out, measured by vacancy and absorption in competing flex and office stock. Cost covers the purchase or build, the operating company's fit-out and any space prepared for outside tenants. Coverage should rest on the operating company's earnings, tested at a higher floating rate, with outside rent counted conservatively. The appraisal will value the building as multi-tenant flex or office space, and the study should support the rents and vacancy the appraiser uses, since those set the lender's fallback.