Key takeaways
- The SBA 504 loan helps fund fixed assets that boost business growth.
- It’s offered through local Certified Development Companies.
- It can fund projects up to $5.5 million.
- Its fee structure is more complicated but reasonable versus other SBA loans.
The SBA 504 loan can help small businesses looking to finance major assets like equipment and real estate to grow their business and create jobs. SBA 504 loans offer long-term fixed-rate financing of up to $5.5 million — much higher than many conventional business loans.
So far in fiscal year 2025, the SBA has approved over 4,200 businesses for 504 loans, totaling nearly $4,82 billion in funding, with an average loan size of $1.14 million, according to the 7(a) & 504 Summary Report. If you’re looking to secure funding for expansion and growth, understanding the SBA 504 loan application process is key.
Before you apply, get to know the eligibility requirements and steps to qualify for and complete an SBA 504 application.
What is an SBA 504 loan?
An SBA 504 loan is a long-term business loan designed for buying large assets like commercial equipment and real estate. The program is focused on assets that support the business’s growth or provide additional jobs to employees.
Like all SBA loans, it’s partially guaranteed by the U.S. Small Business Administration, though at a lower rate than other SBA options.
What is a Certified Development Company?
A Certified Development Company (CDC) is an SBA-certified nonprofit partner that supports developing surrounding communities. These community partners are your go-to source for learning about 504 loan qualifications, program regulations and navigating the application process.
How do SBA 504 loans work?
SBA 504 loans can provide up to $5 million in funding to buy fixed assets like real estate. Funding requests for purchasing, improving, modernizing and construction of qualifying projects may be eligible for up to $5.5 million for multiple loans.
The 504 loan is guaranteed by the SBA for up to 40 percent of the loan amount borrowed. This guarantee is much lower than the 7(a) loan that guarantees up to 85 percent of the loan.
An additional portion of the 504 loan is also guaranteed by a third party, such as a bank or credit union. The third party may guarantee as much as 50 percent of the loan. To round out the collateral requirements, your business will be required to put down at least 10 percent of the loan amount.
SBA 504 loan rates
The 504 loan interest rate is set above the market rate for 10-year U.S. Treasury bonds. It usually totals about 3 percent of the borrowed amount, baked into the loan repayments.
SBA 504 loan fees
The 504 loan program charges a few fees to maintain funding, but the fees can be rolled into the repayments.
|
Type of fee |
Amount charged |
|
Guarantee fee |
0% |
|
Annual service fee |
0.4405% |
|
Lender fee |
0.50%+ |
|
CDC fee |
0.625%+ |
SBA 504 loan repayment terms
SBA 504 loans offer 0-, 20- and 25-year maturity terms. You may have different repayment terms on the portions guaranteed by the bank versus the Certified Development Company.
SBA 504 down payment
The SBA 504 loan program requires a down payment of at least 10 percent. If you’re a startup business or acquire properties for a special purpose, you may be required to put down more money for the loan.
What can an SBA 504 loan be used for?
You can use this popular 504 loan for assets that support business growth initiatives. These include:
| Use of funds | Examples |
| Purchases |
|
| Improvement projects |
|
Ineligible expenses
SBA 504 loans are ineligible for the following expenses:
- Working capital
- Inventory purchases
- Investing or speculating in rental real estate
- Debt consolidation or refinancing that does not meet the qualified debt definition in paragraphs (e) and (g) under 13 CFR 120.882
- Financing for AI-related consulting services, intellectual property or working capital
What are the SBA 504 requirements?
To get an SBA 504 loan, you must meet the SBA’s minimum requirements and requirements from the CDC and lender. Lender requirements will vary but may be competitive because 504 loan borrowing costs and repayment terms are desirable.
SBA 504 loan requirements include:
- Meeting SBA business size guidelines
- Is reasonably able to repay the loan
- For-profit company
- Based in the U.S. or U.S. possessions
- Net worth under $20 million
- Average net income under $6.5 million, after federal taxes for the past two years
- A business plan
- Not be a nonprofit, passive or speculative business
How do you apply for an SBA 504 loan?
The 504 loan program is offered through CDCs, which are nonprofit organizations certified by the SBA to offer this loan. You can apply in a few steps:
- Find a CDC through the SBA’s local assistance tool.
- Contact the CDC directly to start an application.
- Fill out the application. Key managers and employees and anyone with at least 20 percent ownership in the business will need to apply.
- Provide financial and business documents.
- Wait for 30 to 90 days for SBA approval.
The wait for 504 loan approval can be long, but it is usually worth the wait. The bank must underwrite and approve the loan. Then, the CDC must internally approve and underwrite its portion of the loan. The CDC will then submit the application to the SBA to review, approve and authorize the 504 loan.
Once the loan is secured, the bank and CDC will disburse its funds to implement and complete the project before the CDC can close on the loan. The SBA will then sell a debenture to secure funds to disburse to the bank for final closing.
What are alternatives to SBA 504 loans?
You can finance real estate and equipment through business loans other than the 504 loan program. Alternatives that may suit you:
- SBA 7(a) loans. Another popular SBA loan, the 7(a) loan can be used for general purposes, including buying assets. It’s offered through SBA-approved lenders like banks rather than CDCs. The SBA doesn’t require collateral for loans under $25,000, though lenders might.
- SBA Express loans. Express loans work well for small expenses under $500,000 since this is the maximum loan size. Repayment terms range from five to 25 years. It’s also known for faster approvals than the usual SBA loan.
- SBA microloans. Microloans offer funding up to $50,000, usually through a community-based lender that chooses to participate in the microloan program. These lenders usually aim to serve underserved communities, providing education and other support to help small businesses succeed.
- Equipment loans. An equipment loan is a type of business term loan that’s secured by the commercial equipment you’re buying. Like the 504 loan, it may have a lower down payment due to the collateral. Equipment loans often have lenient eligibility requirements, such as requiring annual revenue as low as $100,000.
- Commercial real estate loans. A commercial real estate loan is like a mortgage for your business, except that the lender considers your business income or revenue that the property will bring in when approving the loan.
Bottom line
The SBA 504 loan works well if you want to grow your business by buying assets. You get the benefit of much longer repayment terms than conventional business loans. You also work one-on-one with a Certified Development Company (CDC), a nonprofit specializing in offering these types of loans.
You’re limited in what you can use this loan for, and you have to meet the SBA’s and lender’s requirements to qualify. On top of that, SBA loans are known for their slow approval process, while other lenders offer fast funding in as little as a few days.
You may want to check out other loan options if you don’t qualify for the 504 loan.
Frequently asked questions
-
It can be difficult to get approved for an SBA 504 loan because they offer relatively low interest rates and fees and long repayment terms. You also have to meet the SBA’s requirements and any lender criteria because this loan is competitive with small business owners.
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Before July 2022, the SBA had a rule that required the 504 loan amount to be at least 95 percent of the asset’s appraised value. The percentage is now revised to just 90 percent. If the appraised value is less than 90 percent, the CDC must either lower the loan amount or ask for more business collateral. If the business cash flow is strong enough, the CDC may approve loans that don’t meet this requirement.
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The SBA doesn’t set minimum credit score requirements, but CDCs will determine your creditworthiness to repay the 504 loan. CDCs may look more closely at your revenue, time in business and collateral for this loan.
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