keyz capital logo
SBA Loans

The Ultimate Guide to the SBA 504 Loan Program

The Small Business Administration (SBA) 504 Loan Program is a powerful resource that provides small businesses with access to affordable, long-term financing options for major fixed assets. The program operates through a partnership between the SBA, certified development companies (CDCs), and private sector lenders. It aims to promote economic growth by facilitating the expansion, modernization, or acquisition of essential assets that contribute to job creation and community development.

  • Be a for-profit, U.S.-based business
  • Have a tangible net worth of less than $15 million
  • Have an average net income of less than $5 million after taxes for the two years prior
    to the application
  •  Demonstrate the ability to repay the loan from the operating cash flow of the business
  • Create or retain one job for every $65,000 of SBA 504 loan funds received (or one job
    for every $100,000 for small manufacturers).

Under the SBA 504 Loan Program, small businesses can secure funding for various purposes, including purchasing commercial real estate, constructing new facilities, or acquiring heavy machinery and equipment. The program offers attractive features, such as low down payments, below-market fixed interest rates, and extended repayment terms of up to 25 years. With these favorable terms, small businesses can effectively manage their cash flow while investing in the critical assets needed to enhance their competitiveness and productivity. By stimulating business growth and job opportunities, the SBA 504 Loan Program plays a crucial role in bolstering local economies and fostering sustainable entrepreneurial success.

SBA 504 Loans: Eligibility, Structure, and Repayment for Small Businesses

To qualify for an SBA 504 loan, a business must:

          1.  Be a for-profit, U.S.-based business
          2.  Have a tangible net worth of less than $15 million
          3.  Have an average net income of less than $5 million after taxes for the two years prior
            to the application
          4.  Demonstrate the ability to repay the loan from the operating cash flow of the business
          5.  Create or retain one job for every $65,000 of SBA 504 loan funds received (or one job
            for every $100,000 for small manufacturers).

An SBA 504 loan involves three key participants: a third-party lender contributing 50% of the project cost, a Certified Development Company (CDC) providing 40% (up to $5 million or $5.5 million for certain cases), and the borrower contributing a minimum of 10% as a down payment.

The SBA 504 Loan Program offers small businesses access to affordable, long-term financing for major fixed assets, promoting economic growth and job creation.

Interest rates for SBA 504 loans are fixed for the life of the loan and are determined by the current market rate for five- or ten-year U.S. Treasury issues, plus an additional spread. The repayment terms can range from 10, 20, or 25 years, depending on the nature of the financed assets.

post image

Once the SBA approves the loan, the borrower, CDC, and third-party lender will work together to finalize the loan closing process. After closing, the third-party lender will disburse its portion of the funds, followed by the CDC’s disbursement of the SBA 504 loan proceeds.

Loan repayment for an SBA 504 loan typically begins within 30–60 days of the loan closing. Repayment terms vary based on the financed assets, with 10-, 20-, or 25-year terms available. Borrowers can make monthly payments, which include principal and interest, to the CDC.

Prepayment of an SBA 504 loan is allowed, but it may be subject to prepayment penalties during the first half of the loan term. After this period, borrowers can prepay the loan without penalties.

How to Apply for an SBA 504 Loan

The application process for an SBA 504 loan involves the following steps:

Research and Select a Certified Development Company (CDC): Find a CDC that participates in the SBA 504 Program and has experience in your industry or location. Consider factors such as their track record, reputation, and customer reviews.

Contact the CDC: Reach out to the chosen CDC to express your interest in applying for an SBA 504 loan. Schedule an initial meeting or consultation to discuss your project and determine if you meet the program’s eligibility criteria.

Gather Documentation: Prepare the necessary documentation, including financial statements, tax returns, business plan, collateral information, and any other materials required by the CDC. Be thorough and accurate in presenting your financial history and projections.

Submit Application: Complete the application provided by the CDC, ensuring all required fields are filled out accurately. Include the supporting documents you gathered in the previous step. Review the application carefully before submitting it.

Review and Evaluation: The CDC will review your application and conduct a comprehensive evaluation of your financials, business plan, and project details. They may request additional information or clarification during this stage.

SBA Review: Once the CDC approves your application, they will submit it to the Small Business Administration (SBA) for final review and approval. The SBA will assess the feasibility of your project, evaluate your financials, and verify compliance with program requirements.

Loan Approval and Closing: Upon SBA approval, the CDC will issue a loan commitment letter outlining the terms and conditions of the loan. If you agree to the terms, you can proceed with the loan closing process. This involves signing the necessary loan documents and fulfilling any remaining requirements.

Disbursement and Project Completion: After the loan closing, the CDC will work with you to disburse the approved loan funds to finance your project. Ensure that you follow the loan terms and use the funds for the intended purpose, such as purchasing real estate or acquiring machinery.

It’s important to note that the specific steps and requirements may vary slightly between CDCs and depending on your project’s nature. Working closely with your chosen CDC, providing accurate information, and fulfilling all requirements will increase your chances of a successful SBA 504 Program Loan application.


The SBA 504 Loan Program serves as a vital resource for small businesses seeking to drive growth and expansion. With its attractive features such as fixed interest rates and extended repayment terms, it presents a favorable opportunity to invest in the future success of a business. Moreover, the program’s focus on job creation further enhances its appeal, as it aligns with the goal of fostering economic development.

By familiarizing themselves with the eligibility criteria, loan structure, and application process, small business owners can make informed decisions and determine whether the SBA 504 Loan Program is the ideal financing solution to fuel their aspirations and drive their businesses forward.

Additional Tips for Success

When applying for an SBA 504 Loan Program, consider the following three important factors:

Project Viability: Assess the viability and feasibility of your project before applying. The SBA 504 Loan Program is designed for long-term fixed asset financing, such as real estate acquisition, construction, or machinery purchase. Ensure that your project aligns with the program’s requirements and has a strong business case, including potential for job creation and economic impact.

Certified Development Company (CDC) Selection: Research and select a CDC that is experienced and reputable. Different CDCs may have varying levels of expertise and specialization in certain industries or regions. Choose a CDC that can provide guidance, support, and a streamlined application process. Look for a CDC that has a track record of successful SBA 504 loan approvals and a strong commitment to customer service.

Prepare Comprehensive Documentation: Gather and prepare all the necessary documentation required for your SBA 504 loan application. This typically includes financial statements, tax returns, business plans, project details, and collateral information. Ensure that your financial records are up to date, accurate, and clearly demonstrate your ability to repay the loan. Thoroughly review and organize the documentation to present a complete and compelling loan package to the CDC and SBA.

By considering the project viability, selecting a reputable CDC, and preparing comprehensive documentation, you can enhance your chances of a successful application for an SBA 504 Loan Program.


Related Posts

SBA Loans

The Ultimate Guide to the SBA 7(a) Loan Program

SBA 7(a) loans offer flexible terms and are backed by the SBA, ideal for business…
person in warehouse

Increase Loan Success Through Expert SBA Brokers

Partner with an SBA broker to secure better loan terms and enhance your business’s financial…
medium length section 1