SBA 504 Loans

A complete guide to SBA 504 loans, eligibility requirements, approved uses, and how businesses secure long-term, fixed-rate financing for major assets.

What Is an SBA 504 Loan?

An SBA 504 loan is a government-backed financing program designed to help small businesses purchase major fixed assets such as commercial real estate or long-term equipment. The program is administered by the U.S. Small Business Administration (SBA) and is structured to promote business growth, job creation, and economic development.

Unlike SBA 7(a) loans, which are more flexible, SBA 504 loans are specifically intended for owner-occupied properties and capital-intensive projects and offer long-term, fixed-rate financing.

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How SBA 504 Loans Work

SBA 504 loans use a three-party financing structure that combines private and public capital:

  • A private lender (bank or credit union) typically funds 50% of the project

  • A Certified Development Company (CDC) funds up to 40% through the SBA

  • The borrower contributes as little as 10% equity

This structure allows businesses to access favorable terms while reducing upfront capital requirements.

Approved Uses for SBA 504 Loans

SBA 504 loans are limited to specific, long-term business investments, including:

Commercial Real Estate

  • Purchasing owner-occupied commercial property

  • Constructing new facilities

  • Renovating or expanding existing buildings

Equipment and Fixed Assets

  • Purchasing heavy machinery or equipment

  • Long-life equipment essential to operations

Business Expansion

  • Facility upgrades to support growth

  • Projects tied to job creation or retention

SBA 504 loans cannot be used for working capital, inventory, or refinancing most existing debt.

Loan Amounts, Rates, and Terms

SBA 504 loans are known for their long-term stability.

Typical features include:

  • Loan terms of 10, 20, or 25 years

  • Fixed interest rates on the SBA portion

  • Competitive rates compared to conventional financing

  • Lower down payments, often starting at 10%

Loan limits vary based on project type and public policy goals.

Eligibility Requirements for SBA 504 Loans

To qualify for an SBA 504 loan, borrowers must meet SBA and lender guidelines.

Common requirements include:

  • For-profit business operating in the U.S.

  • Owner-occupied property, typically at least 51% occupancy

  • Net worth and income limits under SBA size standards

  • Demonstrated ability to repay

  • Equity investment by the borrower

The SBA also considers whether the project supports economic development goals.

Down Payment and Equity Contributions

One of the key advantages of SBA 504 loans is the low equity requirement.

Typical borrower contributions include:

  • 10% for standard projects

  • 15% for new businesses or special-use properties

  • 20% for certain higher-risk projects

These lower equity requirements help preserve cash for business operations.

SBA 504 Loans vs Other Financing Options

SBA 504 loans serve a specific role within business financing.

  • SBA 504 Loans – Long-term, fixed-rate financing for real estate and equipment

  • SBA 7(a) Loans – Flexible financing for real estate, business acquisition, and working capital

  • Traditional Commercial Loans – Conventional financing with higher equity requirements

  • DSCR Loans – Investment property financing based on rental income

Choosing the right program depends on how the property or asset will be used.

Benefits of SBA 504 Loans

  • Long-term, fixed interest rates

  • Lower down payments than conventional loans

  • Predictable monthly payments

  • Financing designed for business growth and stability

These features make SBA 504 loans ideal for businesses planning to occupy and grow within their property.

Risks and Considerations

While SBA 504 loans offer stability, there are important considerations:

  • Limited to owner-occupied use

  • More structured approval process

  • Additional documentation and timelines

  • Not suitable for short-term or speculative projects

Understanding these limitations helps determine whether a 504 loan is the right fit.

Frequently Asked Questions About SBA 504 Loans

Are SBA 504 loans only for real estate?

No. They can also be used for long-life equipment and certain facility improvements.

Do SBA 504 loans require owner occupancy?

Yes. The business must occupy a majority of the property.

Are SBA 504 loan rates fixed?

The SBA portion typically carries a fixed interest rate for the life of the loan.

Can SBA 504 loans be combined with other financing?

Yes. The program is structured to work alongside private lenders.

Explore SBA 504 Loan Options

If your business is planning to purchase real estate, build a facility, or invest in major equipment, an SBA 504 loan may provide long-term, fixed-rate financing aligned with your growth strategy.

Speaking with a commercial loan specialist can help determine whether SBA 504 financing fits your business goals and eligibility.

Questions Call (888)214-5151