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What Is A 504 Loan?
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An SBA 504 loan is a 10-percent down, fixed-rate, long-term loan designed to expand capital access - filling a market gap in long-term financing for America's small businesses. Since it is fixed-cost and long-term as well as SBA-backed, the 504 is one of the best financing options available for small business owners today.

Why 504?

Top 10 List of Reasons to Use a 504 Loan



An entrepreneur can build equity while securing stability. Once the building or equipment is paid off, a business can enjoy the same revenue without paying a monthly property expense or may even rent the space out to other businesses for a profit.


With a 504 loan, an entrepreneur can purchase his or her business’s real estate or machinery. He or she then gets the tax benefits and appreciation on the real estate while locking in occupancy costs for 20 years.


As an entrepreneur, you know the importance of liquidity. With financing available for up to 90 percent of project cost, the 504 loan offers a 10 percent down payment (compared to 25 or 30 percent through a traditional bank), enabling the entrepreneur to conserve working capital.


The SBA (Small Business Administration) created this program to increase the accessibility of business property loans to entrepreneurs, helping enhance the economic health of local communities.


NADCO encourages interested small businesses to compare SBA 504 loan fees to fees of other loan options on the market, including other SBA-backed loans such as the popular 7(a). What you will find is that 504-loan fees are the lowest on the market, see our comparison chart here.


The 504 loan means 20-year, fully amortized financing. This enables a small business owner to pay for a facility over the long term while avoiding risky loan call provisions typical of traditional lenders.


The 504-loan boasts low interest rates that vary based on market forces. The actual interest rate the borrower pays is calculated based on the debenture rate for the month the loan is funded. SBA 504 loans are funded by monthly bond (debenture) sales to investors on Wall Street.


SBA 504 loan financing allows an entrepreneur to fix his or her business occupancy costs rather than worry about market instability or fluctuating rates.


An entrepreneur can purchase and hold title to a building personally, in the name of the business or even set up a holding company for the real estate. This gives the small business owner the flexibility to maximize tax benefits of ownership and minimize liability in the manner best suited for the entrepreneur and his company. In some circumstances, two or more small businesses will receive a single 504 loan if it suits them to combine to create a real estate holding company. This option works especially well for professionals in the medical, veterinary, legal and accounting fields.


Unbelievably given the advantages, most businesses worth under $15 million are eligible for a 504 loan for their property and machinery needs. This includes projects as costly as $5,500,000 of 504 financing depending on the nature of said project.


For a more in-depth Top 10 List that compares the SBA 504 loan to the 7(a), please view For Lenders: Top Ten Reasons to Use the 504.

Loan Structure

Financing for a typical 504 loan is broken into three parts, with only the 10 percent put down by the borrower. An additional 40 percent is provided by a Certified Development Company (CDC). CDCs are non-profit corporations that provide loans to encourage small business growth in their local communities and are unique to the 504 Loan program. The remaining 50 percent is provided by a banking partner. See the full financial section for more details

Am I Eligible?


Eligible Uses

  • Acquisition of vacant land
  • Building construction
  • Acquisition of existing buildings
  • Major renovations and/or additions to exisiting building
  • Marine facility acquisition, including fishing vessels and commercial boats
  • Purchases of capital equipment, including heavy machinery
  • Associated costs such as title and insurance, legal fees, appraisals, environmental reports, architects fees, surveys, equipment installation, points on bridge loans, furniture and fixtures, etc.

Jenny's Floral

Above Photo - Jenny's Floral in Custer, SD. SBA 504 loan provided by Black Hills Community Econ. Development, Inc., Rapid City, SD

Note Loan funds may not be used for working capital, mortgage broker fees, bridge loans during the construction period, business inventory, rolling stock (i.e. trucks) or refinancing of existing debt of the business.

Eligible Companies

Companies consistent with the following criteria are eligible:
  • Franchise businesses are eligible and, if listed in the franchise industry, may qualify for expedited loan approval
  • Legal entity - corporation, partnership, sole proprietor, limited liability company
  • Located in the United States
  • Net worth under $15 million and net profits under $5 million
  • Participation by another lender who finances up to 50 percent of project costs
  • Economic development goals must be achieved through the project financing
  • Owner-user of the project being financed must occupy at least 51 percent of the property for an existing building or 60 percent of a newly constructed building. Two or more unrelated small businesses can receive an SBA 504 loan if they combine to meet occupancy requirements.

Companies consistent with the following criteria are NOT eligible:
  • A not-for-profit (exception for sheltered workshops)
  • Engaged in lending; a passive holder of real estate and/or personal property; a life insurance company – however an insurance agency is eligible)
  • Located in a foreign country or owned by aliens who do not have legal permanent resident status
  • Has restriction on patronage
  • Is a government-owned entity (exception for Native American tribes)
  • Engaged in promoting religion
  • Consumer and marketing cooperatives (producer cooperatives are eligible)
  • Engaged in loan packaging
  • Owned by persons of poor character
  • Equity interest by lender, CDC or associates in applicant concern
  • Provides prurient sexual material
  • Has previously defaulted on a federal loan
  • Engaged in political or lobbying activities
  • Speculative businesses


Eligible Projects

Project Size

Most growing businesses are adding staff as they expand and look for larger facilities.

This is when an SBA 504 loan is the perfect choice for financing the new facility!

SBA 504 loan size is linked to job creation . A small business owner must create and/or retain jobs to qualify for an SBA 504 loan. In general, an entrepreneur can borrow $65,000 in SBA 504 loan funding for each job created and/or retained within two years.

There is no limit to the total project cost, however, a CDC can lend you up to 40 percent of the project cost with a dollar cap of $5,000,000 depending on the type of project.

CDCs can exceed $5,000,000 and go as high as $5,500,000 of 504 financing for eligible manufacturing projects and for projects that incorporate energy saving technologies for sustainable design.

Manufacturing & Energy Efficient Projects
  • Eligible manufacturing projects
  • Projects Incorporating energy saving technologies for sustainable design
  • Projects that generate renewable energy like solar, wind or geothermal
  • Small businesses wishing to purchase, construct or retro-fit facilities incorporating energy saving technologies that result in a 10 percent decrease in energy consumption.

Want More Information?

For more information, view a PDF presentation on the SBA 504 loan by right clicking the following image and downloading the file:

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