Ask the Experts: 504 Q&A

Special-Purpose vs. Multi-Purpose Property

Q – Under the 504 loan program, is there a difference between a special-purpose property (e.g., a gasoline station) and a multi-purpose property (e.g., an office building)? If so, how does the SBA define special-purpose property?

A – There is a significant difference when processing a loan transaction for a project that is classified as a special-purpose property (as opposed to a multi-purpose property). If a property is considered special purpose, the borrower must inject a minimum of 15% into the transaction instead of the typical 10% and the bank loan cannot be less than 50% of the transaction.

The SBA classifies special-purpose properties as they are defined in the Appraisal Institute’s Dictionary of Real Estate Appraisal. A special-use or special-purpose property is a property that is appropriate for one use or for a limited use: a building that cannot be converted to another use without a large capital investment. It is one that is designed, equipped, and used for a particular type of business or operation and is not easily adaptable to some other use because of the peculiar nature of the improvements. These properties usually have limited conversion potential.

Examples of special-use or special-purpose properties include churches, synagogues, theaters, sports arenas, schools, dormitories, cold storage plants, tennis clubs, golf courses, marinas, gasoline service stations, automatic car wash properties, hospitals, medical centers, nursing homes, funeral homes, cemeteries, historic properties, sanitary landfills, museums, clubhouses, and some recreational properties. Generally, the SBA considers hotels or motels to be included as a special-use or special-purpose property.

Q – Is there any flexibility?

A – Yes, but the classification of special-purpose or multi-purpose must be determined at the time of the loan application. There are several steps involved in this process and it is important that if the type of project property appears in the list above the FFCFC staff is contacted early in the loan process to provide every opportunity possible to limit the borrower’s equity injection.

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