Question 1

What is an SBA 504 loan?

Accepted Answer

The SBA 504 loan program provides long-term, fixed-rate financing for major fixed assets, typically owner-occupied real estate and large equipment. The loan is structured in two parts: a first mortgage from a conventional lender (typically 50% of the project cost) and a second mortgage from a Certified Development Company (CDC) backed by the SBA (typically 40%). The borrower contributes 10% as a down payment.

Question 2

What is the maximum SBA 504 loan amount?

Accepted Answer

The SBA-guaranteed (CDC) portion of a 504 loan is capped at $5,000,000 ($5.5 million for small manufacturers or projects meeting specific public policy goals). The total project cost can be higher because the conventional first mortgage has no SBA-imposed limit. This means the total financing can exceed $10 million for large projects.

Question 3

What are the interest rates for SBA 504 loans?

Accepted Answer

The SBA 504 CDC (second mortgage) portion has a fixed interest rate that is set when the loan is funded, based on the current market rate for 10-year or 20-year debentures. The conventional first mortgage rate is negotiated with the lender and may be fixed or variable. The blended rate is typically lower than conventional financing alone.

Question 4

What are the terms for SBA 504 loans?

Accepted Answer

SBA 504 loans offer 10, 20, or 25-year terms for real estate and 10-year terms for equipment. The CDC (SBA) portion is fully amortizing over the term with no balloon payment. The conventional first mortgage terms are negotiated with the lender but typically align with the CDC term.

Question 5

What is the down payment for an SBA 504 loan?

Accepted Answer

The standard down payment for an SBA 504 loan is 10% of the total project cost. For startup businesses or special-purpose properties, the SBA may require 15% or 20%. The 50/40/10 structure (50% conventional, 40% SBA/CDC, 10% borrower) is the most common.

Question 6

What is the difference between SBA 7(a) and SBA 504?

Accepted Answer

SBA 7(a) is a single loan (up to $5M) that can be used for real estate, equipment, working capital, or debt refinancing. SBA 504 is a two-loan structure specifically for major fixed assets (real estate and equipment) with a maximum SBA portion of $5M. SBA 504 offers fixed rates on the CDC portion and a lower down payment (10%), while SBA 7(a) offers more flexibility in use of funds.

SBA 504 Loan Program

Key Loan Parameters

Common Use Cases

Owner-Occupied CRE

Ground-Up Construction

Heavy Equipment

Special-Purpose Facilities

Debt Refinance

Green Energy Projects

How the SBA 504 Process Works

Submit Application

CDC Approval & SBA Review

Bank Loan + SBA Debenture

Closing & Funding

Frequently Asked Questions

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