SBA 504 Loan: The Complete Guide
The SBA 504 loan program provides long-term, fixed-rate financing for major fixed assets like commercial real estate and heavy equipment. Its unique three-party structure delivers below-market interest rates and low down payments that conventional loans can't match.
Quick Reference
The 50/40/10 Structure
What makes the 504 program unique is its three-party financing structure. The total project cost is split among three sources:
SBA 504 Loan Structure — $1M Project Example
50%
Bank / Lender
$500,000
First lien position. Rate negotiated with bank (often variable). Term typically 10–20 years.
40%
SBA Debenture (via CDC)
$400,000
Second lien. Fixed rate for 20 or 25 years. This is the below-market rate that makes 504 special.
10%
Borrower Equity
$100,000
Your down payment. Increases to 15% for startups, 20% for special-purpose properties.
This structure is powerful because the SBA debenture portion carries a fixed rate for the full 20–25 year term. In a rising-rate environment, locking in 40% of your project cost at a below-market fixed rate is a significant advantage over a conventional commercial mortgage.
Who Qualifies for an SBA 504 Loan?
- For-profit business operating in the United States
- Net worth under $15M and average net income under $5M for the prior two years
- Owner-occupied property — the business must occupy at least 51% of the building (60% for new construction)
- Job creation or public policy goal — generally 1 job per $90,000 of SBA debenture, with flexible exceptions for energy, rural development, and community goals
Eligible Project Costs
Commercial Real Estate
Purchase of owner-occupied land and buildings. New construction. Renovation and conversion of existing buildings.
Heavy Equipment
Machinery and equipment with a useful life of 10+ years. Must be integral to the business operation.
Soft Costs
Professional fees (architects, engineers), permits, appraisals, environmental studies, and title insurance.
Leasehold Improvements
Improvements to leased property with a remaining lease term of at least 10 years (including options).
Not eligible for 504:
Working capital, inventory, debt consolidation (except 504 Refi program), franchise fees, or investment/rental properties where the business does not occupy 51%+.
The 504 Application Process
1. Find a Bank + CDC
You’ll work with both a traditional bank (for the 50% first lien) and a CDC (for the 40% SBA debenture). SBA Today can match you with both.
2. Joint Application
Submit financials to both the bank and CDC simultaneously. The CDC will prepare the SBA application package.
3. Bank Approval
The bank approves their 50% portion based on their normal underwriting criteria.
4. CDC / SBA Approval
The CDC submits the debenture application to the SBA. Approval typically takes 5–10 business days.
5. Closing & Debenture Sale
Interim financing covers the project while the SBA debenture is pooled and sold in a monthly debenture sale. Once sold, the permanent fixed rate locks in.
504 vs. 7(a): How Do They Compare?
The 504 is ideal when you're buying your building or heavy equipment and want the lowest possible fixed rate. The 7(a) is better for working capital, smaller equipment purchases, or business acquisitions. Many borrowers use both.
See the full comparison →Frequently Asked Questions
What is a Certified Development Company (CDC)?
A CDC is a nonprofit organization certified by the SBA to promote economic development in its community. CDCs work with banks to package and process SBA 504 loans. They administer the SBA debenture portion (40%) of the loan. There are roughly 270 CDCs operating across the United States.
Can I use an SBA 504 loan for working capital?
No. SBA 504 loans are exclusively for fixed assets: owner-occupied commercial real estate, land, and long-life heavy equipment. For working capital, you need an SBA 7(a) loan. Many borrowers combine both: a 504 for the building and a 7(a) for working capital.
What is the current SBA 504 debenture rate?
The 504 debenture rate is set monthly based on a spread above the 5-year and 10-year Treasury rate. As of early 2026, 20-year debenture rates are approximately 5.5-6.0% and 25-year rates are approximately 5.7-6.2%. These are fully fixed for the life of the loan, which is a significant advantage over 7(a) variable rates.
How much do I need for a down payment on a 504 loan?
The standard down payment is 10% of the total project cost. However, it increases to 15% for startups (businesses less than 2 years old) and to 20% for special-purpose properties (single-use buildings like gas stations or car washes).
Can I refinance into an SBA 504 loan?
Yes. The SBA 504 Refinance Program allows business owners to refinance existing commercial real estate debt, including conventional loans. The property must be at least 51% owner-occupied, and the business must have been operating for at least 2 years.