The SBA 504 loan program stands as one of the most powerful financing tools available to small business owners looking to acquire commercial real estate or heavy equipment. With fixed interest rates, low down payments, and terms up to 25 years, this government-backed program has helped thousands of entrepreneurs expand their operations and build long-term wealth.
In fiscal year 2025, the SBA approved over 6,750 504 loans totaling $7.8 billion in funding for American small businesses. Whether you are purchasing your first commercial property, expanding an existing facility, or refinancing debt, understanding how the SBA 504 loan works can save you hundreds of thousands of dollars over the life of your loan.
SBA 504 Loan Program at a Glance
$7.8B
Funded in FY 2025
6,750+
Loans Approved
5.67%
Lowest Rate (Jan 2026)
25 Years
Maximum Term
What Is an SBA 504 Loan and How Does It Work?
An SBA 504 loan is a long-term, fixed-rate financing option designed specifically for small businesses to purchase major fixed assets like commercial real estate, land, and heavy equipment. Unlike conventional commercial loans, the 504 program uses a unique three-party structure that reduces risk for lenders and provides exceptional terms for borrowers.
The financing structure works as follows: a traditional bank or commercial lender provides 50% of the project cost and takes the first lien position. A Certified Development Company (CDC), a nonprofit organization regulated by the SBA, provides 40% of the financing and takes the second lien position. The borrower contributes the remaining 10% as a down payment.
This structure allows lenders to offer more favorable terms because the SBA guarantees the CDC portion of the loan. The result is lower interest rates, smaller down payments, and longer repayment terms than you would find with conventional financing.
SBA 504 Loan Structure
Bank Lender (50%)
First lien position - provides half the project cost at negotiated terms
CDC/SBA (40%)
Second lien position - fixed rate backed by SBA guarantee
Borrower (10%)
Down payment - may increase to 15-20% for startups or special purpose properties
The maximum SBA 504 loan amount is $5.5 million for standard projects, though certain energy-related or manufacturing projects may qualify for up to $5.5 million per project with multiple loans possible. The minimum project size is typically $125,000, making this program accessible to a wide range of business needs.
Who Qualifies for an SBA 504 Loan in 2026?
Qualifying for an SBA 504 loan requires meeting several eligibility criteria established by the Small Business Administration. Understanding these requirements upfront can save you time and help you prepare a stronger application.
Business Size Requirements
Your business must qualify as a small business under SBA standards. For the 504 program, this means your business must have a tangible net worth of $20 million or less and average net income (after federal taxes) of $6.5 million or less over the previous two years. These thresholds make the program accessible to most small and medium-sized businesses.
Operational Requirements
The business must operate for profit within the United States or its territories. Nonprofit organizations, passive investment companies, and speculative businesses do not qualify. Your business must be an established legal entity such as a corporation, partnership, sole proprietorship, or LLC.
Citizenship Requirements
Business owners must be U.S. citizens or legal permanent residents (green card holders). However, changes implemented in January 2026 now allow businesses to include up to 5% ownership by certain foreign nationals or conditional permanent residents, expanding eligibility for more entrepreneurs.
Job Creation Requirements
The SBA 504 program emphasizes economic development. For every $90,000 the CDC lends (or $130,000 for manufacturers), your business must create or retain at least one job. This requirement can also be met through community development goals, energy reduction objectives, or manufacturing job creation.
SBA 504 Eligibility Requirements
| Requirement | Standard | Notes |
|---|---|---|
| Business Net Worth | $20 million or less | Tangible net worth calculation |
| Average Net Income | $6.5 million or less | After-tax, previous 2 years |
| Business Type | For-profit entity | Nonprofits not eligible |
| Ownership | U.S. citizens or permanent residents | Up to 5% foreign ownership allowed as of 2026 |
| Owner Occupancy | 51% minimum | 60-80% for new construction |
| Job Creation | 1 job per $90,000 | $130,000 for manufacturers |
Credit and Financial Requirements
While the SBA does not set a minimum credit score, most lenders look for personal credit scores of 680 or higher. You will need to demonstrate the ability to repay the loan through historical financial statements and cash flow projections. Most CDCs require at least two years of business history, though startups may qualify with additional down payment requirements.
What Can You Use SBA 504 Loan Funds For?
The SBA 504 loan program is designed specifically for financing major fixed assets. Understanding eligible and ineligible uses helps you determine if this program fits your business goals.
Eligible Uses Include:
- Purchasing existing buildings or commercial real estate
- Constructing new facilities or building improvements
- Purchasing land and site improvements (grading, utilities, parking lots)
- Acquiring long-term machinery and equipment with useful life of 10+ years
- Renovating or modernizing existing facilities
- Refinancing existing debt tied to eligible fixed assets
- Soft costs including professional fees, appraisals, and closing costs
Ineligible Uses Include:
- Working capital or inventory purchases
- Debt consolidation (except eligible refinancing)
- Speculative real estate investments
- Rental property investments where you are not the primary occupant
- Businesses engaged in illegal activities
- Lending or investment businesses
Eligible vs. Ineligible Uses
Eligible Uses
- Commercial real estate purchase
- New construction
- Equipment with 10+ year life
- Land and site improvements
- Facility renovation
- Debt refinancing (qualified)
Ineligible Uses
- Working capital
- Inventory purchases
- Rental property investment
- Debt consolidation
- Speculative investments
- Illegal business activities
A critical requirement is that the property must be at least 51% owner-occupied. This means you must use the majority of the space for your own business operations. For new construction, the 51% requirement increases to 60% owner-occupancy within one year and 80% within ten years.
If you need more flexible financing that includes working capital, consider exploring our SBA loan programs to find the right fit for your situation.
What Are the Current SBA 504 Loan Rates in 2026?
One of the most attractive features of the SBA 504 loan is its fixed interest rate structure. Unlike conventional loans or SBA 7(a) loans that may carry variable rates tied to prime, 504 loan rates are fixed for the entire loan term.
As of January 2026, SBA 504 loan rates are:
Current SBA 504 Interest Rates (January 2026)
| Loan Term | Standard Rate | Refinance Rate |
|---|---|---|
| 25-Year Fixed | 5.85% | 5.85% |
| 20-Year Fixed | 5.91% | 5.91% |
| 10-Year Fixed | 5.67% | 5.67% |
These rates apply to the CDC portion (40%) of your loan. The bank portion (50%) will have its own rate, which may be fixed or variable depending on your lender. Your effective blended rate combines both portions.
The CDC portion rate is determined monthly through a debenture sale process tied to U.S. Treasury bond rates. This government-backed structure typically results in rates below what you would find with conventional commercial loans.
FY 2026 Fee Waivers for Manufacturers
If your business operates in manufacturing (NAICS sectors 31-33), you may qualify for significant fee savings. From October 1, 2025 through September 30, 2026, the SBA is waiving both the upfront guaranty fee and annual service fee for all 504 loans to manufacturers. This incentive applies to both new loans and refinancing projects.
Use our commercial loan calculator to estimate your monthly payments based on current rates.
How Does the SBA 504 Loan Application Process Work?
The SBA 504 loan application process involves multiple parties and typically takes 60-90 days from application to funding. Understanding each step helps you prepare and avoid delays.
SBA 504 Loan Application Process
Find a CDC Partner
Connect with a Certified Development Company in your area
Preliminary Qualification
CDC reviews your financials and project for initial eligibility
Select Bank Lender
Identify a participating bank for the 50% first-lien portion
Complete Application
Submit full documentation package to CDC and bank
SBA Authorization
SBA reviews and issues formal loan commitment
Closing and Funding
Complete closing documents and receive loan proceeds
Step 1: Find a CDC Partner
Unlike other SBA loans, 504 loans are only available through Certified Development Companies. CDCs are nonprofit organizations certified by the SBA to promote economic development in their communities. Your CDC will guide you through the entire process and help coordinate with your bank lender.
Step 2: Preliminary Qualification
Your CDC will review your business financials, credit history, and project details to determine preliminary eligibility. This stage helps identify any potential issues before investing significant time in the full application.
Step 3: Identify Your Bank Lender
You will need a participating bank or commercial lender to provide the 50% first-lien portion. Your CDC often has relationships with SBA-approved lenders and can help facilitate introductions. The bank will conduct its own underwriting and due diligence.
Step 4: Complete the Application Package
Prepare comprehensive documentation including:
- Business and personal tax returns (3 years)
- Business financial statements
- Personal financial statements for all owners with 20%+ ownership
- Business plan and projections
- Purchase agreement or construction contracts
- Appraisal and environmental reports
- Entity documents (articles, operating agreements)
Step 5: SBA Authorization
Once the CDC and bank approve your application, it goes to the SBA for final authorization. The SBA reviews the loan package to ensure it meets program requirements and issues a formal commitment.
Step 6: Closing and Funding
After SBA authorization, you will work with closing agents to complete all loan documents. The bank portion typically funds at closing, while the CDC portion may fund shortly after through a debenture sale process.
For detailed guidance on what to expect during closing, read our guide on the commercial loan closing process timeline.
How Does SBA 504 Compare to Other Loan Options?
Choosing the right financing requires understanding how SBA 504 loans stack up against alternatives. Here is how the 504 program compares to other common options for commercial real estate and equipment financing.
SBA 504 vs. Other Financing Options
| Feature | SBA 504 | SBA 7(a) | Conventional |
|---|---|---|---|
| Max Loan Amount | $5.5 million | $5 million | Varies |
| Down Payment | 10-20% | 10-30% | 20-30% |
| Interest Rate | Fixed | Variable or Fixed | Variable or Fixed |
| Max Term | 25 years | 25 years | 5-10 years |
| Working Capital | No | Yes | Limited |
| Processing Time | 60-90 days | 30-60 days | 30-45 days |
| Avg Loan Size (2025) | $1.14 million | $456,417 | Varies |
SBA 504 vs. SBA 7(a)
The SBA 7(a) program offers more flexibility in how funds can be used, including working capital, but typically comes with variable interest rates and higher down payment requirements. The average 504 loan size ($1.14 million) is significantly larger than the average 7(a) loan ($456,417), making 504 better suited for major real estate acquisitions.
Choose 504 when: You are buying commercial real estate or equipment and want the lowest fixed rate with minimal down payment.
Choose 7(a) when: You need working capital, faster processing, or more flexible use of funds.
SBA 504 vs. Conventional Commercial Loans
Conventional commercial loans typically require 20-30% down payments, have shorter terms (5-10 years), and may carry higher interest rates. The 504 program's 10% down payment and 25-year terms provide significant cash flow advantages.
SBA 504 vs. Bridge Loans
Bridge loans serve a different purpose. They provide short-term financing (6-36 months) for time-sensitive acquisitions or transitions. Many borrowers use bridge financing to acquire a property quickly, then refinance into an SBA 504 loan for long-term ownership.
For first-time commercial borrowers, our guide on how to get a commercial loan with no experience provides valuable insights on building a strong application.
What Are the Down Payment Requirements for SBA 504 Loans?
The SBA 504 loan program is known for its low down payment requirements, but the exact amount depends on your specific situation.
SBA 504 Down Payment Requirements
| Scenario | Down Payment | Example |
|---|---|---|
| Standard (existing business, standard property) | 10% | $100,000 on $1M project |
| Startup business OR special purpose property | 15% | $150,000 on $1M project |
| Startup AND special purpose property | 20% | $200,000 on $1M project |
Standard Down Payment: 10%
Most SBA 504 borrowers contribute 10% of the total project cost as their down payment. This is significantly lower than the 20-30% typically required for conventional commercial loans, preserving your working capital for business operations.
Increased Down Payment: 15%
Your down payment increases to 15% if either of the following applies:
- Your business is a startup (less than two years in operation)
- The property is a special purpose facility (designed for a specific use that limits marketability, such as a car wash or bowling alley)
Maximum Down Payment: 20%
If your project involves both factors, a startup business AND a special purpose property, the down payment increases to 20%. While higher than the standard requirement, this still represents significant savings compared to conventional financing.
What Counts Toward Your Down Payment?
Your down payment can come from various sources:
- Cash or liquid assets
- Equity in land already owned (if the project site)
- Subordinated debt from sellers or third parties
- Gifts from family members (with proper documentation)
Understanding commercial loan down payment requirements across different programs helps you plan your capital needs effectively.
What Fees Are Associated with SBA 504 Loans?
Understanding the full cost of an SBA 504 loan requires looking beyond the interest rate to the various fees involved. While these fees add to your total cost, they are generally lower than what you would pay for conventional commercial financing.
CDC Fees (SBA Portion)
- Guarantee fee: 0.5% of the debenture amount (paid at closing)
- CDC processing fee: Typically 1.5% of the CDC loan amount
- Funding fee: 0.25% of the CDC loan amount
- Annual service fee: Approximately 0.625% annually (built into the rate)
Bank Fees (First Lien Portion)
- Origination fee: 0-2% depending on the lender
- Appraisal and environmental fees: $3,000-$10,000+
- Legal and closing costs: Varies by transaction
Fee Waivers Available
As mentioned earlier, manufacturers operating under NAICS codes 31-33 can take advantage of complete fee waivers through September 30, 2026, eliminating both the upfront guaranty fee and annual service fee on 504 loans.
FY 2026 Fee Waivers for Manufacturers
Manufacturers (NAICS codes 31-33) can eliminate upfront guaranty fees and annual service fees on 504 loans through September 30, 2026. This makes 504 financing even more affordable for manufacturing equipment and facility purchases.
What Are the Advantages and Disadvantages of SBA 504 Loans?
Every financing option involves tradeoffs. Understanding both the benefits and limitations of SBA 504 loans helps you make an informed decision.
SBA 504 Loan Pros and Cons
Advantages
- Fixed rates for up to 25 years
- Low 10% down payment
- Long repayment terms
- No balloon payments
- Below-market interest rates
- Build equity in real assets
Disadvantages
- 60-90 day processing time
- 51% owner-occupancy required
- Prepayment penalties (first 10 years)
- Cannot use for working capital
- Extensive documentation required
- Job creation requirements
Key Advantages
Fixed Interest Rates: Unlike many commercial loans, 504 rates are fixed for the entire term, whether 10, 20, or 25 years. This protects you from rising interest rates and makes long-term budgeting predictable.
Low Down Payment: The 10% down payment requirement (versus 20-30% for conventional loans) preserves your capital for business operations, inventory, or unexpected expenses.
Long Repayment Terms: Terms up to 25 years mean lower monthly payments and improved cash flow compared to conventional loans with 5-10 year terms.
No Balloon Payments: 504 loans are fully amortizing, eliminating the refinancing risk that comes with balloon payment structures.
Build Equity: Each payment builds equity in a tangible asset, creating long-term wealth for your business.
Potential Disadvantages
Longer Processing Time: The multi-party structure means 504 loans typically take 60-90 days to close, longer than some conventional options.
Owner-Occupancy Requirement: You must occupy at least 51% of the property, limiting investment property opportunities.
Prepayment Penalties: The CDC portion carries prepayment penalties in the first 10 years, though these decrease over time.
Limited Use of Funds: Unlike 7(a) loans, you cannot use 504 funds for working capital or inventory.
Ready to explore whether an SBA 504 loan fits your business goals? Contact our team for a personalized consultation with our commercial lending specialists.
How Long Does It Take to Get an SBA 504 Loan?
Timeline is a critical consideration for any commercial real estate transaction. SBA 504 loans generally take longer than conventional financing due to the multiple parties involved.
Typical Timeline: 60-90 Days
From application submission to funding, most 504 loans close within 60-90 days. This timeline can vary based on:
- Completeness of your application package
- Complexity of the transaction
- Bank and CDC processing capacity
- Property appraisal and environmental review timing
- SBA authorization queue
Timeline Breakdown
- Pre-qualification and CDC selection: 1-2 weeks
- Application preparation and submission: 2-3 weeks
- Bank and CDC underwriting: 3-4 weeks
- SBA authorization: 1-2 weeks
- Closing preparation and funding: 2-3 weeks
Tips for Faster Processing
- Have all documentation ready before applying
- Work with experienced CDC and bank partners
- Respond quickly to any additional information requests
- Ensure your property has clear title and environmental status
- Have your down payment funds readily available
If you need faster financing for a time-sensitive acquisition, a bridge loan can help you secure the property while your 504 application processes.
Can You Refinance with an SBA 504 Loan?
Yes, the SBA 504 refinancing program allows eligible businesses to refinance existing debt into the favorable terms of a 504 loan. This can be an excellent strategy for businesses with conventional loans carrying higher rates or balloon payments.
Refinancing Eligibility Requirements
- The existing debt must have been used for eligible 504 purposes (real estate, equipment)
- The original debt must have been incurred at least 6 months prior
- Your business must have been in operation for at least 2 years
- The property must be at least 85% owner-occupied (higher than the 51% for purchase loans)
- No adverse change in business ownership in the past year
Benefits of 504 Refinancing
- Lock in fixed rates for up to 25 years
- Lower monthly payments through extended terms
- Cash-out option for eligible business expenses (limited to 25% of appraised value)
- Eliminate balloon payment risk
Cash-Out Refinancing Rules
If you take cash out during refinancing, the funds must be used for eligible business expenses such as:
- Salaries and inventory
- Rent and utilities
- Other eligible business operating expenses
The cash-out amount cannot exceed 25% of the appraised fair market value of the property and is subject to additional job creation requirements.
What Properties and Equipment Qualify for SBA 504 Financing?
The 504 program covers a wide range of fixed assets, but understanding what qualifies helps you plan your project effectively.
Eligible Property Types for SBA 504 Loans
| Property Type | Down Payment | Notes |
|---|---|---|
| Office Buildings | 10% | Standard requirement |
| Retail/Shopping Centers | 10% | Must be 51%+ owner-occupied |
| Warehouses | 10% | Industrial uses eligible |
| Manufacturing Facilities | 10% | Fee waivers available FY 2026 |
| Medical/Dental Offices | 10% | Healthcare facilities eligible |
| Restaurants | 15% | Special purpose property |
| Gas Stations | 15% | Special purpose property |
| Car Washes | 15% | Special purpose property |
Eligible Real Estate
- Office buildings
- Retail stores and shopping centers
- Warehouses and distribution centers
- Manufacturing facilities
- Medical and dental offices
- Restaurants and hospitality properties
- Mixed-use properties (if 51%+ owner-occupied)
- Assisted living and healthcare facilities
- Self-storage facilities
- Auto dealerships and service centers
Eligible Equipment
- Manufacturing machinery and production equipment
- Medical and diagnostic equipment
- IT infrastructure and data centers
- Heavy construction equipment
- Commercial vehicles (with 10+ year useful life)
- Industrial ovens, presses, and fabrication equipment
Special Purpose Properties
Special purpose properties, those designed for a specific use that limits marketability, do qualify but require a higher down payment (15% or 20%). Examples include:
- Gas stations
- Car washes
- Bowling alleys
- Funeral homes
- Restaurants with specialized build-outs
If you are planning new construction, our commercial construction loan approval guide provides additional insights on navigating the financing process.
How Do You Find the Right CDC and Lender for Your SBA 504 Loan?
Choosing the right Certified Development Company and bank lender significantly impacts your experience and success with the 504 program.
Finding a CDC
CDCs operate in specific geographic regions, so your options depend on your business location. The SBA maintains a directory of certified CDCs on their website. When evaluating CDCs, consider:
- Experience and loan volume in the 504 program
- Familiarity with your industry and property type
- Responsiveness and communication style
- Relationships with quality bank partners
- Track record of successful closings
Choosing a Bank Partner
Your CDC often recommends bank partners they work with regularly, which can streamline the process. When evaluating banks, consider:
- Experience with SBA lending programs
- Interest rates and terms for the first-lien portion
- Processing speed and efficiency
- Relationship potential for future banking needs
Working with Clearhouse Lending
At Clearhouse Lending, we specialize in commercial real estate financing including SBA loan programs. Our team can help you:
- Determine if 504 is the right program for your needs
- Connect with experienced CDCs and bank partners
- Structure your financing for optimal terms
- Navigate the application process efficiently
Use our DSCR calculator to evaluate your debt service coverage ratio before applying.
What Are Common Mistakes to Avoid with SBA 504 Loans?
Learning from others' mistakes can help you navigate the 504 process more smoothly.
Common Mistakes to Avoid
Do not underestimate documentation requirements. Gather 3 years of tax returns and detailed financials before applying. Plan for 60-90 day timelines and factor in prepayment penalties if you may sell or refinance within 10 years.
Mistake 1: Underestimating Documentation Requirements
The 504 program requires extensive documentation. Gather three years of tax returns, detailed financial statements, and business projections before applying. Incomplete packages cause the most delays.
Mistake 2: Not Planning for the Timeline
With 60-90 day processing times, 504 loans are not suitable for time-sensitive transactions without bridge financing. Build adequate time into your purchase agreements or consider short-term financing alternatives.
Mistake 3: Ignoring Owner-Occupancy Requirements
Remember that you must occupy at least 51% of the property. If your space needs will not meet this threshold, 504 is not the right program. For investment properties, explore our guide on commercial real estate loan requirements.
Mistake 4: Overlooking Job Creation Requirements
The job creation mandate ($90,000 per job) catches some borrowers off guard. Discuss this requirement with your CDC early to ensure you can meet it through hiring, job retention, or alternative community development goals.
Mistake 5: Not Shopping Rates on the Bank Portion
While the CDC rate is standardized, bank rates vary. Get quotes from multiple lenders to ensure you are getting competitive terms on the 50% first-lien portion.
Mistake 6: Failing to Plan for Prepayment Penalties
If you might sell or refinance within 10 years, factor in prepayment penalties on the CDC portion. These typically start at around 5% and decrease annually.
Is an SBA 504 Loan Right for Your Business?
The SBA 504 loan program offers exceptional terms for the right borrower and the right project. Consider the 504 program if:
- You are purchasing owner-occupied commercial real estate
- You want fixed-rate, long-term financing
- You prefer a low down payment to preserve working capital
- You can meet job creation or community development goals
- You have time for a 60-90 day closing process
- Your credit and financials meet program requirements
The program may not be ideal if you need working capital, want investment property financing, require faster closing, or plan to sell within a few years.
Ready to Take the Next Step?
At Clearhouse Lending, our commercial financing specialists have helped hundreds of small business owners navigate the SBA 504 process successfully. We understand the nuances of the program and can help you:
- Evaluate whether 504 is the best option for your situation
- Compare 504 to other financing alternatives
- Connect with top CDCs and bank partners
- Structure your transaction for success
Contact us today to schedule a consultation with our SBA lending experts. We will review your situation and provide personalized guidance on the best path forward for your commercial real estate goals.
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