NoteSolutions.us

What Is Commercial Property In The Small Business Sector?

By Robert Duplicki      June 22, 2024  Updated May 31,2026

The four main classes of commercial real estate are office space, industrial, multifamily rentals and retail. This list can be expanded to include lodging, mixed-use and alternative properties. Commercial real estate is also defined as buildings and land that are used for profit generating activities like stores and factories.

The focus of this article is about commercial real estate that fits in with the U.S. Small Business Administration definition of small business. Apartment buildings in the 5-100 unit size also apply.

Back to Table of Contents

Key 2026 Real Estate Challenges for Small Business

• High Financing Costs & Refinancing Risks: Elevated, volatile interest rates continue to make borrowing expensive, while over $950 billion in commercial loans maturing in 2025/2026 creates a competitive market for refinancing, potentially squeezing small businesses out.
• Tight Lending: Lenders are strictly enforcing debt service coverage ratios (DSCR), making it difficult for businesses with tight cash flows to qualify.

• Rising Operating Costs: Ongoing inflation is driving up costs related to labor, insurance, and energy costs, reducing the cash flow necessary for property down payments and maintenance.

  The U.S. Chamber of Commerce Small Business Index 2026 first quarter report shows that 53% of small business owners mark inflation as their biggest challenge.

• Limited Inventory & Competition: Inventory remains limited in high-demand areas, and small businesses face competition from large institutional investors for available properties.
• Structural Shifts & Location Risk: The rise of hybrid work affects the value of traditional office spaces, while AI demand and e-commerce growth change the landscape for industrial/specialty properties.
• Stringent Valuation & Appraisal Issues: Lenders are relying heavily on 2025's fluctuating financial performance, which may not reflect a business's current value, leading to valuation gaps.
• Deferred Maintenance & Hidden Costs: Older, more "affordable" properties often come with heavy deferred maintenance, such as aging HVAC systems or roofs needing immediate replacement, which can strain a small business's budget after the purchase.

Back to Table of Contents

What About Institutional Financing?

Will you qualify and do you want to? There are many financing options, and commercial property buyers have a wide array of potential needs. So it will take some effort on your part to find institutional financing that best matches your situation.

Despite all the programs available, it doesn’t take much about a buyer or a property to not match up with insitutional financing. In such cases seller financing can often be the answer.

One of the institutional programs you don’t presently qualify for may be a better alternative in the future. So seller financing can also be the best temporary choice, until you qualify for better alternatives.

Back to Table of Contents

Commercial Real Estate Opportunities To Consider Now

1. The real estate challenges listed above do lead to some motivated sellers who need to make a deal. If you lease space now, purchase a building with room for yourself and others.

   By taking advantage of lower prices and seller financing, you can replace your lease, and have rental income from others to pay your expenses and still produce positive cash flow. Of course for a lot of small businesses a large building isn’t needed to make this work.

2. Adaptive reuse is another great opportunity. The United States has a shortage of affordable housing. Office buildings available at discount prices are a popular conversion to apartments.

   The federal government has offered their support. Commercial To Residential Conversions: A Guidebook To Available Federal Resources is a 54 page PDF that provides an overview of federal programs, loans, grants, guarantees and tax incentives to support commercial to residential conversions.

3. There are existing apartments in favorable locations that could use an improvement in management. In some situations the rents being charged have not been increased to keep up with market rents. You can update the process and increase the rents which will increase your net operating income (NOI). Doing so will increase the value of this property for you.

4. Of course adaptive reuse is not restricted to office buildings. Gas stations are another great opportunity. Many gas stations have been repurposed for a variety of uses such as housing, restaurants and other businesses. Many old gas stations have also been identified as petroleum brownfields by the EPA.

   Here is a resource from the EPA (Environmental Protection Agency) that provides much information about petroleum brownfields including financing and grants. It is possible that seller financing could be used to purchase such a property.

   To help stimulate your imagination check out America’s 7 Most Beautiful Gas Station Conversions from Architectural Digest.

5. There are deals to be found in other areas of commercial real estate where you can make use of seller financing. These property types are not facing the same struggles as office and retail, but you will find good deals if you persist. This group includes multifamily, mobile home parks, self storage, industrial, warehouse, data centers, flex space and other commercial.

6. Focus on Owner-Occupied Properties. Lenders may look more favorably upon, or offer better terms for, properties where the buyer occupies at least 51% of the space, as this is seen as lower risk than investment-only properties.

   A small business may qualify to buy real estate with 0% down using an SBA 7(a) loan. This applies only for owner-occupied commercial properties, so the business must occupy at least 51% of the property. While a 10% down payment is common for the 7(a) program, 100% financing is possible if the business has strong cash flow, good credit, and the property appraises well. This often applies to business expansions rather than startups or acquisitions.

   The loan must be approved by a preferred SBA lender, meeting both SBA requiremnets and those of the specific lender. Those requirements include good historical cash flow, high credit scores and debt coverage ratios (DSCR) above 1.25. All owners with at least 20% equity must provide an unlimited, full personal guarantee.

7. Mixed-Use Property Is A Growing Opportunity

Mixed-use property is made up of residential, commercial, retail and potentially other components at one location. In this case a location can be horizontal (complimentary located in the same block or area), vertical (different property types within a single building) or a walkable mixed-use development (combining horizontal and vertical nearby).

Mixed-Use properties have been around for years, often in downtowns having retail and commercial usage on the first floor, and apartments above. The walkable aspect has made mixed-use properties more poplular again. According to National Association of Realtors data from December 2025, 79 percent of homebuyers rate walkability as important when selecting where to live. Even more significantly, 78 percent say they would willingly pay more for homes in walkable communities.

There is also the belief in diversifying investments that makes mixed-use properties attractive. When demand for one component such as office space softens, another such as income from apartment rentals can keep investments at least stable. While mixed-use properties have a group of advantages, they also present challenges such as more demanding management and zoning requirements.

Institutional financing of mixed-use properties is based on factors such as building size, the percentage of residential and commercial components and whether owner-occupied. As with other bank programs you may find the financing you need, but you will need to meet specific criteria to qualify. If you consider this path, keep in mind that private lenders and seller financing will offer much more flexibility.

For more information about mixed-use properties consider 7 Key Insights Into Mixed-Use Property Investment for 2026: A Complete Guide to Financing and Success by AmeriSave.

Back to Table of Contents

Seller Financing For Buyers

Much of what you will find about seller financing on this website takes the perspective from the seller’s viewpoint. While buyers haven’t been neglected, seller financing does require sellers who are willing to provide it. So NoteSolutions provides information to help create notes and sell them when the time is right to do so.

For buyers of property and businesses, much of the same information is helpful. So I suggest that buyers learn about seller financing in order to make the best use of it.

Many sellers will not be prepared or interested to offer seller financing. This gives properly prepared buyers the chance to present offers using seller financing to their advantage. So learn the information at this website so you can construct winning offers.

Here are some ideas to help you put deals together:

• If you don’t want to qualify for bank financing, what is your cash position like? Who might you partner with? Have you pursued private lenders? What combination of these resources can be used in conjunction with seller financing?
• Is the seller willing to finance the entire deal for no money down, for the right price and terms?
• Look for motivated sellers and sellers who own the property free and clear.
• It’s not necessary for the property to be owned free and clear to obtain seller financing. So learn as much as you can about the seller’s situation before you construct your offer.
• If there is an existing mortgage on the property, consider using a wrap around mortgage. For more information take a look at Should You Use A Wrap Around Mortgage? and More Ideas To Help You Succeed Using A Wrap Around Mortgage
• Could you use a partner's credit to assume the existing debt and arrange seller financing for the remainder?
• If the property has defects that prevent bank financing, these defects will not prevent seller financing.
• Your credit history may be acceptable for the property owner to provide seller financing, while it won’t meet the requirements for bank financing. So seller financing will give you more time to improve your credit history.
• As you improve your credit history by making all seller financing payments on time, this will make the seller held note more favorable to sell. With this in mind,you can sell yourself to the seller to get the seller financing in the first place.
• If the seller doesn’t like something about your resume or your offer, you have a much better chance to negotiate than getting past bank requirements.
• While I don’t suggest that you present yourself as a tax advisor, you could mention the tax advantages of seller financing to the seller. For more information review What Are The Tax Implications Of Seller Financing?
• You might consider a Home Equity Line Of Credit as a source for a down payment or rehab expenses. 34 Questions About Home Equity Lines Of Credit (HELOC’S) will give you additional information.
• Balloon payments are a common part of seller financing. As an alternative you could use stepped payments. I cover this in more detail at What’s Better, A Balloon Note Or Stepped Payments?

Back to Table of Contents

Have You Considered Selling A Note?

If you have a note for sale, get started now. Please submit a worksheet, and I will start working to produce a deal for you.

As a note broker I will work with you to give you the best value for your note. This involves a more in depth analysis of your needs, your note and the best funding sources to approach on your behalf. This also includes presenting your situation to note buyers in the most favorable way. And my approach will not be limited by any one note buyer's requirements and note pricing. So TAKE ACTION NOW!

Related Questions

Back to Table of Contents

More Resources For You

Do You Have A Mortgage Note For Sale?

16 Ideas To Help You Utilize Seller Financing

Distressed Property And Real Estate Notes

More Ideas To Help You Succeed Using A Wrap Around Mortgage