SBA 504 Loan Program

The 504 Loan Structure

The 504 loan divides project costs among three parties: a private-sector lender (bank or credit union) covers 50% as the senior mortgage, a Certified Development Company (CDC) provides up to 40% backed by a 100% SBA-guaranteed debenture, and the business owner contributes a minimum 10% down payment. This structure means lower down payments and a fixed rate on the CDC portion for the life of the loan.

Use of Proceeds

• Purchasing existing buildings or land
• Constructing new facilities or modernizing existing ones
• Acquiring long-term machinery and equipment (minimum 10-year useful life)
• Improving land, streets, utilities, and parking lots

What 504 Loans Cannot Be Used For

504 loans are restricted to fixed assets. They cannot be used for working capital, inventory, consolidating debt (unless part of a larger real estate acquisition), or investing in rental real estate.

Loan Terms & Rates

The CDC/SBA portion carries a fixed interest rate for the life of the loan, pegged to an increment above the current market rate for 10-year U.S. Treasury issues. The private lender's portion has its own separate rate and terms. Fees on the CDC/SBA portion total approximately 3% of the debenture amount and can often be financed with the loan.

Down Payment Details

• Standard: 10% minimum from the borrower
• New businesses (less than 2 years): 15% minimum
• Single-purpose properties (hotels, gas stations, etc.): 15% minimum
• New business AND single-purpose property: 20% minimum

Eligibility Requirements

• Must be a for-profit business operating in the United States
• Tangible net worth less than $20 million
• Average net income less than $6.5 million (after taxes, preceding two years)
• Project must meet a job creation or public policy goal (typically 1 job per $75K of SBA loan)
• Alternative goals related to community development or energy efficiency may also qualify