An SBA 504 loan finances owner occupied real estate and long life equipment by splitting the project three ways: a bank lends about half, a Certified Development Company (CDC) lends up to 40 percent with an SBA guarantee, and you put in as little as 10 percent. The CDC portion carries a long fixed rate, which makes 504 one of the lowest down payment, most predictable ways to buy a building.
How the structure works
A typical 504 project is built in three pieces.
| Piece | Who provides it | Share of project | Position |
|---|---|---|---|
| First loan | Bank or other private lender | 50 percent or more | First lien |
| 504 loan | CDC, funded by an SBA guaranteed debenture | Up to 40 percent | Second lien |
| Down payment | You | 10 percent or more | Equity |
The bank's loan is conventional, with its own rate and term. The CDC's loan is funded by a debenture sold to investors and fully guaranteed by the SBA, which is why its rate is fixed for the life of the loan. Terms on the CDC portion are 10, 20 or 25 years.
During construction or until the debenture funds, the bank usually provides an interim loan covering both its share and the CDC's share. The CDC takes out the interim piece once the project is complete.
Down payment rules. The standard minimum is 10 percent. It rises to 15 percent if the business has operated for less than two years or the building is special purpose (a hotel, car wash or bowling alley, for example), and to 20 percent if both apply. The CDC's share drops by the same amount.
Loan limits. The CDC portion is capped at $5 million for most projects and $5.5 million for small manufacturers and qualifying energy projects. Manufacturers can use 504 for more than one project. The total project can be much larger, because the bank's portion has no SBA limit. Since July 4, 2026, a borrower can hold up to $5 million in SBA 7(a) loans alongside up to $5 million in 504 financing, for up to $10 million in SBA backed loans in total.
What 504 can pay for
The program is for fixed assets that support the business over many years:
- Buying an existing building
- Buying land and building new
- Renovating, expanding or converting an existing facility
- Buying heavy equipment and machinery with a useful life of 10 years or more
- Refinancing eligible fixed asset debt, in some cases with a portion of working capital
504 does not cover working capital on its own, inventory, or investment real estate. The building must be owner occupied: your business must occupy at least 51 percent of an existing building, or 60 percent of a new building, with plans to grow into more. For general commercial real estate such as rental property, look at a CRE lender instead.
What lenders and CDCs look for
Two parties underwrite a 504 loan, and both have to say yes.
Eligibility. The business must be for profit, operate in the US, and meet the SBA size standard. Under the 504 alternative test, that means a tangible net worth of no more than $20 million and average net income after taxes of no more than $6.5 million over the past two years.
Cash flow. The bank and the CDC both confirm the business can carry the new occupancy cost. If you are moving from rented space, they compare your current rent with the new payments.
Credit and management. Owners with 20 percent or more of the business provide personal guarantees and credit history. Lenders want management experience in the industry.
The property. Expect an appraisal and an environmental review. Special purpose buildings, rural properties and older industrial sites get closer attention.
Public policy goals. 504 exists to support local economic development. Projects generally need to create or retain jobs or meet another program goal, such as rural development, energy efficiency, manufacturing, or expansion of businesses owned by women, veterans or minority groups. Most projects meet this without difficulty, and your CDC will document it.
Process and timing
- Find a bank and a CDC. Many owners start with a bank that works with a CDC regularly. Others start with the CDC, which introduces partner banks.
- Term sheets. The bank issues a commitment for its first loan and the interim loan. The CDC reviews the project and prepares the SBA application.
- SBA authorization. The CDC submits the package to the SBA. Approval typically takes a few weeks.
- Interim closing. The bank closes its loan and the interim financing, and you buy the building or start construction.
- Debenture funding. After the project is complete, the CDC's loan is funded through the next monthly debenture sale and the interim loan is paid off.
For an existing building, expect 60 to 90 days from application to the interim closing. Construction projects take longer, since the debenture funds only after the building is finished.
Plan for third party reports early. Appraisals, environmental reports and title work are the most common source of delays.
Which lenders to approach
- A CDC in your area. CDCs are nonprofit lenders licensed by the SBA, and most cover a defined region. A strong CDC will tell you within one meeting whether your project fits. Browse SBA lenders on the register.
- A community or regional bank that does 504 often. The bank's first loan is the largest piece of the project, and banks that know the structure close faster. See banks.
- Credit unions with commercial real estate teams increasingly provide the first loan. See credit unions.
- CRE lenders can serve as the first lender on larger projects. See CRE lenders.
Search by place to find CDCs and banks that know your market, such as lenders in Georgia or Washington.
504 or 7(a)? Choose 504 when the project is mostly real estate or heavy equipment and you want a low down payment with a long fixed rate. Choose 7(a) when you also need working capital, are buying a business, or want a single lender. For machinery alone, compare 504 with equipment financing, which can close in days.
504 is a US program. In Canada, the Canada Small Business Financing Program covers real property, equipment and leasehold improvements through banks and credit unions.
Need help choosing a lender? Sign up through BusinessLoanBroker.ai to share your financing needs and get help with your next steps. You can also explore financing guides and tools before you apply.