The SBA 504 loan program is specifically designed to help small businesses purchase major fixed assets like commercial real estate and heavy equipment. With below-market interest rates and long repayment terms, it's one of the most affordable ways to finance your business's growth.
Unlike the more flexible SBA 7(a) loan, the 504 program focuses exclusively on fixed assets that promote job creation and economic development. If you're planning to buy a building, construct a new facility, or invest in substantial equipment, this program could save you tens of thousands in interest costs.
How the SBA 504 Loan Structure Works
The 504 loan has a unique three-party structure that keeps rates low:
| Funding Source | Percentage | Purpose |
|---|---|---|
| Bank or Credit Union | 50% | First mortgage position |
| CDC (SBA-backed) | 40% | Second mortgage, fixed rate |
| Borrower Down Payment | 10% | Equity contribution |
The Certified Development Company (CDC) portion is funded through SBA-guaranteed debentures, which is why the interest rate on that portion is typically below market rates and fixed for the entire loan term.
What Can You Use a 504 Loan For?
Eligible Uses
- Purchasing existing buildings or land
- Constructing new facilities or renovating existing ones
- Purchasing heavy machinery and equipment
- Refinancing debt related to eligible fixed assets
- Improvements to land, streets, utilities, and landscaping
Ineligible Uses
- Working capital or inventory
- Consolidating or repaying unsecured debt
- Speculative real estate investments
- Rental or investment properties (must be owner-occupied)
Current SBA 504 Loan Rates and Terms
Interest rates on the CDC portion are set monthly based on current market rates for 5-year and 10-year U.S. Treasury issues. As of late 2025, effective rates typically range from 5.5% to 7% for the CDC portion.
| Loan Term | Asset Type |
|---|---|
| 10 years | Equipment and machinery |
| 20 years | Real estate |
| 25 years | Real estate (extended term) |
Qualification Requirements
To qualify for an SBA 504 loan, your business must meet these criteria:
- Net worth: Business tangible net worth under $15 million
- Net income: Average net income under $5 million after taxes for the previous two years
- For-profit: Must be a for-profit business operating in the U.S.
- Owner-occupied: Must occupy at least 51% of the property
- Job creation: Must create or retain one job per $75,000 borrowed (or meet community development goals)
Down Payment Requirements
The standard down payment is 10%, but increases to 15% for startups (businesses less than 2 years old) or single-purpose buildings like car washes, hotels, or gas stations. New businesses purchasing single-purpose properties may need 20% down.
Advantages Over Conventional Loans
- Lower down payment: 10% vs. 20-30% for conventional commercial mortgages
- Fixed rates: Lock in your rate for up to 25 years
- Longer terms: Spread payments over 20-25 years instead of 5-10
- No balloon payments: Fully amortizing loans with predictable payments
- 100% financing: Can include soft costs like appraisals and environmental studies
See If You Qualify for a 504 Loan
Answer a few questions to check your eligibility and get matched with SBA-approved lenders.
Check EligibilityThe Application Process
Applying for an SBA 504 loan involves working with both a lender (bank or credit union) and a CDC. Here's the typical timeline:
- Week 1-2: Submit application and documentation to lender and CDC
- Week 3-4: Lender and CDC review and underwriting
- Week 5-6: SBA authorization
- Week 7-10: Closing and funding
Working with an experienced SBA lender can significantly speed up this process. Many preferred lenders have delegated authority to approve loans without waiting for SBA review.
The SBA 504 program represents one of the best financing options available for small businesses making major capital investments. With fixed rates, long terms, and low down payments, it's worth exploring if you're planning to purchase real estate or substantial equipment for your business.