For SBA lenders
Short answer
This scenario creates an 'identity of interest' or 'common ownership' between the operating business and the landlord entity. The lender must ensure the lease terms are reasonable and arm's length, and potentially include the real estate in the collateral for the 7(a) loan if it is critical to the business.
When the borrower also owns the landlord entity, SBA views this as an identity of interest. The lender must verify that the lease terms (rent, term, options) are fair and customary for the market, preventing artificial inflation of expenses or benefits to the landlord entity at the expense of the operating business. The real estate may need to be included if it is 'necessary and integral' to the business.
A borrower acquiring an operating business leases its location from an LLC that the borrower also owns. The lender obtains an independent appraisal of the property and a market rent analysis to ensure the lease payments are reasonable and reflect arm's-length terms.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
SOP 50 10 - Lender and Development Company Loan Programs
13 CFR Part 121 - Small Business Size Regulations
Last checked 2026-06-13. Official sources control — verify before relying on any rule for a live deal.
Last reviewed 2026-06-13 · SBA sources checked through 2026-06-13. DealRoom analysis of public SBA 7(a) lending records (FY2020–present). Grounded in the current SBA rulebook; verify against the official sources above before relying on it for a live deal. Not legal, tax, or financial advice, and not an approval decision.
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