SBA 504 Loans: The Structure, the Rules and Who Qualifies
For property you occupy and long-lived equipment, through a participating lender and a CDC.
Soft credit pull only, no obligation
Rates, factor rates, fees and terms are set by the funding provider that makes your offer and are disclosed in that provider's agreement. Figures on this page are illustrative ranges from providers in our network, not offers. On a 504 the lender sets its first-mortgage rate; the CDC portion's rate is fixed when the debenture is sold. Both disclose their fees.
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At a glance
| SBA-backed portion | Up to $5 million, or $5.5 million for small manufacturers and certain energy projects |
|---|---|
| Term length | CDC debenture of 10, 20 or 25 years, fixed rate; the lender's mortgage has its own term |
| Time to funding | Several weeks to a few months, subject to provider approval and document turnaround |
| Cost expressed as | The lender's rate on its first mortgage, a CDC rate fixed when the SBA-guaranteed debenture is sold, plus fees disclosed by the lender and the CDC |
| Structure | Lender about 50%, CDC about 40%, you about 10% of project cost, by SBA rules |
|---|---|
| Capital Gurus' role | Referral and application help. Capital Gurus is not an SBA lender; SBA loans are made by SBA-participating lenders. |
No 504 rate appears on this page: the lender and the CDC quote it once they hold the project.
What is an SBA 504 loan?
Definition
An SBA 504 loan is two loans closed on one project: a first mortgage from an SBA-participating lender and a second from a Certified Development Company (CDC), a non-profit that funds its share with a debenture the SBA guarantees.
Your equity sits under both, and the SBA sets each share.
Why two loans instead of one?
The CDC portion carries a rate fixed for the life of the debenture, so a large part of the payment stops moving at closing.
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The lender funds only its own share and holds first lien: a smaller, better-secured loan than it would write alone, which often makes the project financeable.
What can a 504 pay for?
Buying, building or improving premises you occupy, long-lived equipment, site work, and qualifying fixed-asset refinancing.
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Equipment generally needs a useful life of ten years or more. Working capital, inventory and goodwill go elsewhere, usually onto an SBA 7(a). Typical projects: hotels and manufacturers buying the site or line they run on.
What are the eligibility rules?
You occupy most of the building, and the project creates or keeps jobs, or meets a public-policy goal.
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Occupancy: at least 51% of an existing building, or 60% of one you build. Jobs: generally one per $95,000 of the SBA-backed portion ($150,000 for a small manufacturer).
How much you can get, and over how long
The caps above are SBA rules for the SBA-backed portion, not a limit on the project: the whole project can be larger.
What the lender and the CDC weigh
- Project cost and appraisal
- Cash flow against the payment
- Your equity, in the bank
- Jobs created or kept
Equipment or property?
Equipment
The shortest debenture.
Real estate
The longest debenture.
The CDC debenture runs 10, 20 or 25 years, at a rate fixed for its life, per the SBA's 504 loan page. The lender's first mortgage has its own rate and term.
Two habits that keep a 504 moving
Have your share in the bank before the file starts.
Name any hard closing date on day one.
One application, and an advisor reads your file before any lender does.
How the cost of a 504 is expressed
The cost arrives from two directions, and each party discloses its own.
The lender's first mortgage
Its rate and fees, set by that lender on commercial terms.
Set by the lenderThe CDC portion
A rate set when the SBA-guaranteed debenture is sold.
Fixed for its life
On top of the rates, disclosed by the lender and the CDC
- SBA guarantee fee
- CDC processing and servicing
- Appraisal, title and environmental
- Prepayment fee in the early years
SBA loan rates explains the caps.
No 504 rate or payment appears on this page: the lender and the CDC quote those once they hold the project.
See who qualifiesWhy the long fixed term does the work
A debenture of 10, 20 or 25 years on the larger part of a building purchase gives a payment a trading business can carry. Selling early? Ask for the prepayment schedule first.
Who qualifies for a 504
| U.S. | for-profit, SBA-size business |
|---|---|
| 20% | stake that needs a guarantee |
| 10% | of project cost from you |
Your share rises to 15% for a start-up or a special-purpose building, and to 20% when both apply. A 504 has no credit-elsewhere test; the jobs test takes its place.
We publish no SBA credit-score, revenue or time-in-business minimum: those belong to each lender and CDC. See business loan requirements.
What both underwriters read
The same credit work, done twice.
Filed business and personal returns.
Cash flow that covers the new payment.
Clean personal credit, no unpaid federal debt.
Your equity in the bank, not promised.
When a 504 is the right tool, and when it is not
A fixed asset you will occupy or run for many years, in a business that can wait.
| Ask yourself | Good use | Not for |
|---|---|---|
| Will you occupy it? |
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| Is it a fixed asset? |
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Will you occupy it?
- Buying the building you trade from.
- Property bought to rent out. It is ineligible.
Is it a fixed asset?
- A machine or line with a long working life.
Better fit elsewhere
- One machine, without the paperworkUse insteadEquipment financingdecided on the asset and a vendor quote
- Fit-out, stock and opening costsUse insteadBusiness term loansa fixed amount on a set schedule
Capital Gurus is not an SBA lender; SBA loans are made by SBA-participating lenders.
Compare the SBA programs
A 504 pays only for fixed assets you occupy or run. Working capital, inventory or goodwill needs another program, and if one fits better we say so when we read the project.
- SBA loans overview
What every program shares: the lender and the guarantee.
- SBA 7(a) loans
General purposes up to $5 million, including working capital.
- SBA Express loans
A 7(a) variant up to $500,000, with a smaller guarantee.
- SBA microloans
Up to $50,000 from non-profit intermediaries, for younger businesses.
Related financing
- business term loans
A fixed amount, repaid on a schedule you can put in the budget.
- business line of credit
Standby capital you draw only when you need it, then draw again.
SBA 504 loan questions
In short
An SBA 504 is one of the SBA loans for owner-occupied property and long-lived equipment: a participating lender's first mortgage plus a Certified Development Company's second, with an SBA-backed portion up to $5 million at a fixed rate. Capital Gurus is not an SBA lender; SBA loans are made by SBA-participating lenders. Expect weeks, not days.
What is an SBA 504 loan?
A 504 is a fixed-asset loan structured as two loans closed together: a first mortgage from an SBA-participating lender and a second from a Certified Development Company, funded by an SBA-guaranteed debenture at a rate fixed for its life. It pays for owner-occupied property and long-lived equipment, and nothing else.
How is a 504 split between the lender and the CDC?
The usual split is about 50% from the participating lender in first position, about 40% from the CDC in second position, and about 10% from you. Your share rises to 15% for a start-up or a special-purpose building, and to 20% when both apply. The SBA sets those shares; nobody negotiates them.
What can a 504 be used for, and what is excluded?
It funds buying, building or improving the premises your business occupies, long-lived machinery and equipment, site work such as parking, utilities and grading, and refinancing of qualifying fixed-asset debt. It cannot fund working capital, inventory, the goodwill in a business purchase, or property bought to rent out.
SBA 504 or SBA 7(a): which fits my project?
If the money buys a fixed asset you will occupy or operate, the 504 usually gives the better structure, because the CDC portion carries a long fixed rate. Any part of the need that is working capital, inventory or goodwill cannot ride on a 504; a 7(a) covers it.
Is there really a job-creation requirement?
Yes. A 504 project is generally expected to create or retain one job for every $95,000 of the SBA-backed portion, or $150,000 for a small manufacturer. A project that misses the ratio can still qualify by meeting a community-development or public-policy goal. The CDC tests this before the file moves.
How long does a 504 take?
Usually several weeks to a few months, subject to provider approval and document turnaround, and generally longer than a 7(a). Two parties underwrite the same project, the SBA reviews the debenture, and property files add appraisals, title, insurance and environmental reports. If the purchase has a hard closing date, say so before the file starts.
Does Capital Gurus make 504 loans?
Capital Gurus is not an SBA lender; SBA loans are made by SBA-participating lenders. A 504 comes from a participating lender and a Certified Development Company. We read the project, say whether it looks like a 504 or a 7(a), help assemble the package and refer it. Any fee paid to a packager or referral agent is disclosed on SBA Form 159.
Still have a question?
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Capital Gurus is not an SBA lender; SBA loans are made by SBA-participating lenders. Capital Gurus is not an affiliate of the U.S. Small Business Administration. Rates, fees and terms are set by the participating lender, the Certified Development Company or the funding provider, and are disclosed in that party's agreement. Capital Gurus · 1700 S Pavilion Center Dr, Ste 420, Las Vegas, NV 89135.
Nothing on this page is financial, legal or tax advice.
Own the building you work from: see whether your project fits an SBA 504.
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