SBA 504 Loan | $5.69M Dual-Building Commercial Acquisition

The borrower operated a healthcare services business across two adjacent commercial buildings and sought to acquire both properties under SBA 504 financing. The transaction had been in active engagement for approximately 17 months, during which Cornovus Capital evaluated and structured multiple financing paths, including SBA 7(a) 100% financing, conventional permanent debt, and combination structures, before the SBA 504 capital stack became the executable solution.

The core underwriting problem was in the borrower’s tax return. The business return carried a single expense line exceeding $2.2 million labeled as operating costs. That line did not exist in the company’s accounting ledger. The prior accounting firm had reclassified non-recurring merchant cash advance repayments from balance sheet liabilities into the profit and loss statement, creating a material discrepancy between the return and the books. Every lender reviewing the file encountered that discrepancy and stopped. Without resolving it, no lender could verify the cash flow needed to clear the SBA’s minimum debt service coverage requirement.

Access to the underlying records was a separate obstacle. The accounting firm that prepared the return held the only credentials to the borrower’s accounting system and was unreachable. The general ledger was locked, and a replacement firm covered only the current tax year, not the period in question.

The SBA 504 program also required the borrower to meet owner-occupancy thresholds under SBA Standard Operating Procedures. With four existing tenants across the two buildings, the initial occupancy allocation did not satisfy the requirement, and the capital structure could not proceed until it did.

At closing, the first mortgage lender required fully executed subordination, non-disturbance, and attornment agreements from all four tenants. The forms were not circulated until the day before the scheduled funding date, and a slip into the following month risked stale closing documents and a full restart of the closing process.

• A $2.2 million expense line on the business tax return did not exist in the operating ledger, blocking every prior lender review
• The accounting firm that prepared the return was unreachable and held the only access to the borrower’s general ledger
• Multiple financing structures were evaluated over 17 months before the SBA 504 loan became the executable path
• SBA owner-occupancy requirements were not initially met under the existing tenant configuration
• Four-tenant subordination agreements were required at closing with less than 24 hours to execute before the funding deadline

Cornovus Capital bypassed the narrative explanation the borrower had been presenting and went directly to the source documents. The underwriting team traced 24 months of bank statements across the borrower’s operating accounts and identified the actual composition of the disputed expense line: the payments were non-recurring merchant cash advance repayments that had been reclassified from balance sheet liabilities into operating expenses by the prior accounting firm. The current-year financial statements confirmed non-recurrence: the advances had been used for prior property acquisitions and renovations unrelated to this transaction, were fully repaid before year-end 2024, and carried no comparable line item in the current period. Cornovus Capital built the addback case on verified bank transactions rather than borrower narrative, giving the lender a documentable basis for the expense adjustment.

Separately, Cornovus Capital compiled independent documentation supporting over $1 million in capital expenditure invoices from third-party vendors, each with signed payment confirmation letters. These were presented as independent corroboration of the borrower’s capital investment in the properties, maintained in a separate evidentiary track from the bank-traced addback.

The SBA 504 loan capital stack was built on the standard 50/40/10 structure: two conventional first mortgage loans at $1,580,000 each, with two interim bridge loans at $1,264,000 each funding the CDC debenture tranche through closing. The rate was fixed for the life of the loan at the 10-year Treasury plus 3.75%, fully amortizing over 25 years. Cornovus Capital structured and coordinated four separate loan closings, two per building, on a single settlement date.

One existing tenant relocated to another property owned by the seller, which allowed the borrower to occupy the vacated space for business operations. The resulting occupancy allocation satisfied SBA owner-occupancy requirements and was independently verified by the appraiser, the CDC, and the conventional lender.

On the closing date, the lender’s requirement for fully executed subordination agreements from all four tenants threatened to delay funding. Cornovus Capital reviewed each lease and identified self-operative subordination language in every tenant agreement, meaning each tenant was automatically subordinate to any future lender lien without requiring a separate signature. Cornovus Capital built a closing package that included highlighted lease extracts, combined estoppel certificates, a title insure-over request, and a step-by-step closing path that allowed the lender to fund on schedule with the signed agreements delivered post-closing.

• Traced 24 months of bank statements to isolate the non-recurring expense, replacing borrower narrative with verified bank transaction evidence
• Documented over $1 million in independent capital expenditure invoices as separate corroboration of the borrower’s property investment
• Built the SBA 504 loan capital stack across four coordinated loan closings on a single settlement date
• Resolved the SBA owner-occupancy requirement after an existing tenant relocated to another seller-owned property, with occupancy verified by the appraiser, the CDC, and the conventional lender
• Identified self-operative subordination language in all four tenant leases, eliminating the need for signed agreements before funding
• Delivered a closing-day package that separated blocking conditions from post-closing deliverables, keeping the funding timeline intact

The $5,688,000 SBA 504 capital stack closed and funded with both buildings acquired simultaneously on the same settlement date. The $3,160,000 in conventional first mortgage financing and the $2,528,000 in interim bridge financing, which will convert to the permanent CDC debenture, were executed in parallel across four coordinated loan closings.

The forensic underwriting approach proved the non-recurring nature of the disputed expense line through bank-traced evidence rather than borrower narrative. That finding cleared the lender’s addback condition and established the debt service coverage ratio above the SBA’s minimum threshold. The independent capital expenditure documentation provided additional support for the credit package without commingling evidence across separate underwriting tracks.

The owner-occupancy requirement was satisfied after an existing tenant relocated to another property owned by the seller. The resulting allocation was independently verified by the appraiser, the CDC, and the conventional lender, clearing the SBA Standard Operating Procedure threshold for borrower-occupied square footage.

The closing-day subordination analysis preserved the funding timeline. Self-operative lease language established lender lien priority without requiring tenant signatures before funding. The subordination agreements were delivered post-closing as a clean-up item, with two tenants’ agreements accepted for recording and the remaining agreements finalized in the weeks following settlement. The borrower acquired both properties and consolidated the operating business under a single ownership structure with long-term, fixed-rate permanent financing in place.

• $5,688,000 total capital stack closed and funded: $3,160,000 conventional first mortgage, $2,528,000 CDC debenture (bridged)
• Dual-building acquisition completed with simultaneous closings on the same settlement date
• 25-year fully amortizing fixed-rate permanent financing at 10-year Treasury plus 3.75%
• Forensic bank-statement underwriting resolved a $2.2 million documentation discrepancy that had blocked all prior lender reviews
• SBA owner-occupancy requirement satisfied after tenant relocation, independently verified by the appraiser, the CDC, and the conventional lender
• Closing-day subordination analysis preserved the funding date, with tenant agreements delivered post-closing
• Transaction moved from engagement through closing after 17 months of structuring across multiple financing programs

Additional financing outcomes are available in our Transaction Highlights archive.