SBA 504 Loans

Who Qualifies

To be eligible, a business generally must:

• Operate as a for-profit company in the U.S.

• Be small under SBA size standards

• Show good character and the ability to repay the loan

Size can be measured by industry standards or by an alternative test. Under the alternative standard, a business qualifies if its tangible net worth is not more than $20 million and its average net income after federal income taxes for the two prior completed fiscal years is not more than $6.5 million.

504 vs. 7(a) for Real Estate and Equipment

• Rate structure. The 504 CDC portion is fixed. Many 7(a) loans are variable, though fixed-rate 7(a) loans are also available.

• Flexibility. A 7(a) loan can cover working capital, inventory and business purchases in the same deal. The 504 program is limited to fixed assets.

• Process. A 504 project has two lenders, two sets of closing documents and a CDC review. A 7(a) loan involves one lender.

• Prepayment. Both programs can carry prepayment fees in the early years, so check the terms if you may sell or refinance soon.

The Application Process Through a CDC

1. Define the project. Gather purchase contracts, construction bids or equipment quotes and a clear budget.

2. Find a CDC and a lender. 504 loans are available only through CDCs, which are community-based nonprofit partners of the SBA. Many banks work with CDCs regularly.

3. Submit financials. Expect tax returns, interim statements, projections, a debt schedule and personal financial statements for owners.

4. Approval and interim financing. The lender often provides interim financing while the SBA-backed debenture is arranged.

5. Closing and debenture sale. After the project is completed, the CDC portion is typically funded through a debenture sale, and the fixed rate is set at that time.

Frequently Asked Questions

How much down payment does an SBA 504 loan require?
At least 10% of the project cost in a typical deal. The requirement can be higher for newer businesses or special-purpose properties.

Can I use an SBA 504 loan to buy an investment property?
No. Speculation and investment in rental real estate are not eligible uses. The program is meant for property and equipment your business uses.

Is the whole loan fixed rate?
Only the CDC portion carries the SBA-backed fixed rate. The private lender's portion has its own terms, which may be fixed or variable.

Plan Your Next Expansion

If your business is ready to own its building or invest in long-life equipment, the 504 program may offer a lower down payment and a fixed rate on a large part of the cost. Compare it with other financing options to find the structure that fits your growth plans.

An SBA 504 loan provides long-term, fixed-rate financing for major fixed assets such as land, buildings and heavy equipment that help a small business grow and create jobs. Instead of one lender carrying the whole project, a 504 deal splits the financing between a private lender, a Certified Development Company (CDC) backed by the U.S. Small Business Administration, and the business owner.

That shared structure is the program's main advantage. It can mean a smaller down payment than many conventional commercial mortgages, a fixed rate on a large part of the debt, and terms of up to 25 years. The trade-off is a narrower list of uses and a process that involves two lenders instead of one.

How the 50-40-10 Structure Works

According to the SBA, a typical 504 project is financed in three parts:

• Private lender, up to 50%. A bank or other lender makes a conventional loan secured by a first lien on the asset.

• CDC, up to 40%. A CDC makes a loan funded by a debenture that is 100% guaranteed by the SBA, secured by a second lien.

• Borrower, at least 10%. The business contributes equity. The required share can be higher in some cases, such as for newer businesses or special-purpose buildings.

In a hypothetical $2,000,000 building purchase, the private lender would fund $1,000,000, the CDC would fund $800,000, and the business would put in $200,000. Only the CDC portion carries the SBA-backed fixed rate. The lender's portion is priced and structured by that lender.

What You Can and Cannot Finance

Eligible uses listed by the SBA include:

• Buying existing buildings or land

• New construction or renovating existing facilities

• Long-term machinery and equipment with a remaining useful life of at least 10 years

• Refinancing certain debt connected to eligible fixed assets, under specific program conditions

The program cannot be used for working capital or inventory, for consolidating or repaying debt that does not meet the program's definitions, or for speculation or investment in rental real estate. The property generally needs to be used by your own business.

Loan Limits and Project Size

The SBA lists a maximum 504 loan amount of $5.5 million. Under program rules, the standard limit on the SBA-backed portion is $5 million, and the $5.5 million figure applies per project for small manufacturers and certain projects that cut energy use or upgrade renewable energy sources. A CDC can confirm which limit applies to your project.

Because the CDC portion usually covers about 40% of the cost, the total project can be much larger than the cap. In a hypothetical case, a $5 million CDC loan at 40% would support a $12.5 million project.

Under a rule that took effect July 4, 2026, eligible borrowers can combine 504 and 7(a) financing for up to $10 million in total SBA-backed loans. The SBA also notes that small manufacturers can obtain multiple 504 loans as long as each one is tied to a distinct project.

Rates, Terms and Fees

Rates. The CDC portion carries a fixed rate pegged to an increment above the current market rate for 10-year U.S. Treasury issues. That fixed rate is a major draw for owners who want predictable payments for decades.

Terms. The SBA offers 10-, 20- and 25-year maturities on the CDC portion. Real estate projects generally use the longer terms, while equipment uses shorter ones.

Fees. The SBA states that fees total approximately 3% of the debt and may be financed with the loan. The private lender may also charge its own fees.