SBA 504 Loan Program… what’s in it for me?

Are you looking to purchase, expand or modernize your company’s business location? Is your business ready for ownership of real estate versus renting a facility? If you’re exploring these options, then the SBA’s 504 Loan Program may be for you.  This SBA program, in partnership with your bank, a Community Development Corporation and the SBA, benefits your business with longer term loans, competitive rates, and lower down payment requirements than typical direct bank financing related to owner occupied real estate and equipment financing. The typical financing arrangement of the program includes 50% of your project financed with a bank, 40% financed through the SBA and an equity injection from you of only 10%. Almost all of the fees associated with the program can be added to the overall project cost and included in the financing. The 40% financed through the SBA is structured on a fixed rate of interest for up to 20 years, which is a very beneficial attribute of the program. Additionally, the bank’s 50% loan is secured by a priority lien on the project which enhances the bank’s risk position and appetite for your project.


To be eligible, your business must be in a profitable position or have reasonable projections of profitability into the future. In addition, you’ll need to have a feasible business plan and relevant management expertise to be considered eligible for a 504 loan. You’re also required to do business in the United States.

Additionally, some other requirements are:

  • Your business must have a tangible net worth of less than $15 million dollars.
  • Your business must have an average net income less than $5 million after taxes for the preceding two years.
  • You must have the ability to repay the loan on time from the projections of cash flow of your business.
  • You must prove that the project is increasing or maintaining jobs in the community and/or is there to support goals associated with public policy or small manufacturing.

Use the funds

Loan funds can be used to:

  • Purchase land
  • Purchase existing buildings
  • Purchase long-term machinery and equipment
  • Purchase improvements (including grading, street improvements, utilities, parking lots and landscaping); or
  • Build new facilities or modernize, renovate or convert existing facilities

A 504 loan cannot be used for:

  • Working capital or inventory
  • Consolidating, repaying or refinancing debt (although for a portion of the project, you may refinance debt associated with buying or renovating equipment or facilities); or
  • Speculation or investment in rental real estate

504 Loan terms

Loan amounts are calculated at up to 90% of the overall project cost (supported by an appraisal). The loan can be amortized up to 20 years on real estate and up to 10 years on long term equipment. This flexibility affords you the opportunity to achieve ownership in your business facility and the benefit of building equity in your business for future use or for your retirement.

SBA 504 loans are an extremely useful tool for achieving your dream of small business ownership. Please contact your bank and/or a local Community Development Corporation for more details on how to begin the process.

For additional resources to help manage your business, click here to access the SBA Learning Center.