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SBA 504 Commercial Real Estate Loans

SBA 504 loans are designed to fuel small business growth and job creation by providing an affordable path to long-term, fixed-rate financing. This program empowers small businesses to purchase, expand, or modernize facilities and equipment with greater financial stability.

Financing is delivered through a partnership between Certified Development Companies (CDCs) nonprofit corporations certified and regulated by the SBA and participating lenders. Together, they offer small businesses the resources and structure needed to invest confidently in their future.

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SBA 504

SBA 504 Loan Highlights

Eligible Properties: Warehouse/Industrial, Mixed Use, Retail, Medical/Healthcare, Self Storage, Hotel/Motel, Restaurants, Daycare facilities, Assisted Living,
Loan amount range: Up to $5 million or $5.5 for manufactures and energy-efficient projects
Interest Rate: Pegged to an increment above the current market rate for 5-year and 10-year US treasury issues. See current LIBOR Rates
Loan Term: 10 to 20 years
Amortization: 10 to 30 years.
Maximum LTV: Up to 90% LTV. Hospitality is limited to 85%
Minimum DSCR: 1.20x
Minimum Debt Yield: 7-8%
Recourse: Full Recourse.
Prepayment: Prepayment penalty declines during the first 10 years to 0%. The loan is assumable and the prepayment penalty does not apply.
Collateral: The project assets that are being financed are used as collateral. The principal owners are required to produce personal guarantees.

Advantages / disadvantages of SBA 504 Loans

Advantages:

SBA 504 loans offer a powerful set of benefits for small businesses looking to invest in commercial property:

  • Fixed Interest Rates:

    Enjoy predictable monthly payments throughout the life of the loan, helping your budget with confidence.

  • Low Down Payment:

    Typically, just 10% of the total project cost, including renovations and soft costs—preserving your cash flow for day-to-day operations.

  • Extended Terms:

    Choose from 10- or 20-year repayment terms to align with your financial strategy and long-term goals.

  • Competitive Rates:

    Even with fees and closing costs factored in, SBA 504 loans often carry lower interest rates than traditional loans.

  • Inclusive Financing:

    Soft costs like legal fees, appraisals, and environmental assessments can be included in the loan, minimizing upfront expenses.

Disadvantages:

While SBA 504 loans are an excellent financing tool for many businesses, there are a few limitations to consider:

  • Limited Eligibility:

    Available only to small businesses purchasing owner-occupied properties investment or rental properties do not qualify.

  • Job Creation Requirement:

    The business must create or retain one job for every $65,000 borrowed (or $100,000 for small manufacturers).

  • Longer Approval Timeline:

    Involving three parties the borrower, the lender, and the CDC—means the approval process is more detailed and time-consuming than a conventional loan. SBA underwriting is managed through a central office, which can add to wait times and lead to more intensive documentation reviews.

SBA 504 Loans FAQ’s

The SBA 504 Loan Program offers a structured, cost-effective way for small businesses to invest in their future. The funding breakdown is as follows:

  • 40% of project costs are funded by the SBA through a Certified Development Company (CDC)
  • 50% is financed by a participating lender
  • 10% is contributed by the borrower (in some cases, this may increase to 15–20% depending on the project or business type)

With fixed interest rates, no balloon payments, and long amortization terms, SBA 504 loans are designed to ease the financial burden and enhance cash flow.

The maximum loan amount is generally $5 million, but this increases to $5.5 million for manufacturers and certain energy-efficient projects.

To qualify, businesses must create or retain one job for every $65,000 borrowed or one job for every $100,000 in the case of small manufacturers. Under special circumstances, exceptions may be made if job impact requirements are balanced across the CDC’s broader portfolio.

To be eligible, your business must be:

  • A for-profit U.S. company
  • Within the SBA’s size standards
  • Having a tangible net worth of $15 million or less
  • Earning an average net income of $5 million or less (after federal taxes) over the past two years

Nonprofits, speculative ventures, and passive-income businesses (such as rental-only operations) do not qualify. Your local CDC can help assess your eligibility.

To be eligible, your business must be:

  • A for-profit U.S. company
  • Within the SBA’s size standards
  • Having a tangible net worth of $15 million or less
  • Earning an average net income of $5 million or less (after federal taxes) over the past two years

Nonprofits, speculative ventures, and passive-income businesses (such as rental-only operations) do not qualify. Your local CDC can help assess your eligibility.

A 504 loan can finance a wide variety of fixed-asset purchases and improvements, including:

  • Buying land or existing buildings
  • Constructing new facilities
  • Renovating or modernizing current buildings
  • Purchasing long-term equipment or machinery
  • Making land improvements (e.g., utilities, parking, landscaping)
  • Covering soft costs like appraisals, permits, and legal fees
  • Refinancing debt only when tied to business expansion (e.g., new construction or equipment)

Note: These funds cannot be used for working capital, inventory, or debt consolidation (except as outlined above).

SBA 504 loans offer long-term, fixed-rate financing options with amortization periods of 10, 20, or 25 years. Your CDC and lender can help select the term that best fits your financial plan.

The primary collateral is typically the project assets being financed. However, personal guarantees from business owners are also usually required.

Interest rates on SBA 504 loans are linked to U.S. Treasury bond rates (5-year and 10-year) and are set at the time of funding. Fixed rates ensure predictable payments throughout the life of the loan.

Direct refinancing of an SBA 504 loan is not allowed. However, the SBA 504 Refinance Program is available for non-SBA commercial loans.

To qualify for refinancing:

  • The original loan must be at least two years old
  • 85% of the original debt must have been used for 504-eligible purposes
  • 15% may have been used for other business-related needs
  • A 15% down payment is required
  • Only existing businesses (over two years old) are eligible

The refinance process mirrors that of a standard 504 loan and begins with working alongside a CDC and a participating lender.

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