If you’re planning to purchase commercial property, upgrade facilities, or invest in major equipment, the SBA 504 Loan Program could be your most powerful financial tool. Backed by the U.S. Small Business Administration (SBA), the 504 loan offers long-term, fixed-rate financing for small businesses looking to acquire fixed assets that promote growth and job creation.
In this post, we’ll explain exactly what the SBA 504 loan is, what it can be used for, who qualifies, and how to apply.
What Is the SBA 504 Loan?
The SBA 504 Loan is a government-backed loan program that helps small businesses finance large fixed assets, such as:
- Purchasing land or commercial real estate
- Constructing new facilities or renovating existing ones
- Buying heavy machinery or long-life equipment
This program is designed to encourage economic development and create jobs by helping businesses own their infrastructure.
How Does the SBA 504 Loan Work?
The loan is structured in three parts:
| Lender | Role | Share |
|---|---|---|
| Certified Development Company (CDC) | SBA-backed nonprofit that provides part of the loan | 40% |
| Bank or traditional lender | Provides conventional loan | 50% |
| Borrower (You) | Provides down payment | 10% (may increase to 15-20% depending on risk factors) |
In most cases, the Bank or traditional lender provides 50% of the loan, the CDC provides 40% and the borrower provides 10% in the form of a down payment, sometimes called an equity injection. The loan structure may change, however, based on certain circumstances.
| Lender | Standard loan structure | New business OR limited/special purpose property | New business AND limited/special purpose property |
|---|---|---|---|
| Certified Development Company (CDC) | 40% | 35% | 30% |
| Bank or traditional lender | 50% | 50% | 50% |
| Borrower (You) | 10% | 15% | 20% |
💡 Because you only put down 10%, you get access to larger capital with lower out-of-pocket costs compared to traditional financing.
What Can You Use a 504 Loan For?
Eligible uses include:
- Buying or improving land and buildings
- Constructing new facilities or expanding existing ones
- Purchasing long-term machinery or heavy equipment
- Installing energy-efficient systems (HVAC, solar, insulation)
Ineligible uses include:
- Working capital or inventory
- Debt refinancing
- Investing in rental properties or speculation
Key Loan Terms
| Term | Detail |
|---|---|
| Loan Amount | Up to $5.5 million from CDC + matching from lender (total financing can exceed $10 million) |
| Repayment Term | 10, 20, or 25 years |
| Interest Rate | Fixed rates, typically around 5% to 7%, tied to the 10-year U.S. Treasury notes. |
| Collateral | The asset being financed is usually sufficient |
| Job Creation Requirement | 1 job created per $75,000 borrowed (or meet public policy goals) |
Who Qualifies for a 504 Loan?
To be eligible, your business must:
- Be for-profit and based in the U.S.
- Have tangible net worth under $15 million
- Have average net income under $5 million (after taxes) for the past 2 years
- Use funds for approved purposes only
- Demonstrate ability to repay the loan
📌 Startups may qualify if they have strong financial projections and personal guarantees.
Required Documents
To apply, you’ll typically need:
- SBA Form 1244 (504 loan application)
- Business plan and financial projections
- Personal financial statements (SBA Form 413)
- 3 years of business and personal tax returns
- Interim financial statements
- Details of the asset to be purchased (purchase agreement, cost estimate)
- Resume of business owner(s) and organizational documents
Why Choose a 504 Loan?
✅ Low Down Payment: Just 10% in most cases
✅ Fixed Rates: No surprises in your monthly payment
✅ Long Terms: Up to 25 years for real estate
✅ Asset Ownership: Build equity instead of renting
✅ Job Creation Incentive: Support local economic growth
🌟 For growing companies looking to control their space or modernize operations, the 504 loan can be a game-changer.
Real-World Example
Let’s say you want to purchase a $1 million office building:
- $400,000 financed by the CDC (40%)
- $500,000 financed by a bank (50%)
- $100,000 paid by you (10%)
With 20- or 25-year fixed terms, your business enjoys lower monthly payments and long-term stability, all while building ownership equity.
Next Steps
- Connect with a Certified Development Company (CDC) in your area
- Gather necessary documents and financials
- Work with a participating lender to structure the deal
- Submit your SBA 504 loan package and begin the underwriting process
🔗 Find your local CDC here: Find a qualified lender
The SBA 504 Loan isn’t for every business — but for those looking to buy instead of lease, modernize their infrastructure, or expand operations, it offers unbeatable advantages.
If your growth depends on controlling your own space, this is the loan to explore.
🔜 Coming Up Next:
- SBA 504 vs. Other SBA Loans – What’s the Difference?
- How to Qualify for an 504 Loan
- The 504 Loan Application Step-by-Step Process
- Other Loans
