What is the 504 Loan Program?

A powerful economic development loan program that offers small business financing, while promoting business growth, and job creation. This program is a proven success and win-win-win for the small business, the community and participating lenders.

504 Program FAQs

Certified Development Companies (CDCs), SBA’s community-based partners, provide approved small businesses with long-term, fixed-rate financing used to acquire fixed assets for expansion or modernization.

504 Loan Structure

504 Loans are typically structured with SBA providing 40% of the total project costs, a participating lender covering up to 50% of the total project costs, and the borrower contributing10% of the project costs. Under certain circumstances, a borrower may be required to contribute up to 20% of the total project costs.

504 Loan Example

Total 504 projects costs for a $1,000,000 project may include the following (eligibility requirements apply to the 504 portion of the project as well as the participating lending  portion):

  • Building Purchase
  • Land
  • Renovation
  • Furniture and Equipment
  • Soft Costs
  • TOTAL $1,000,000

Loan Structure

  • $500,000, 1st lien with bank (loan obtained from a private sector lender covering up to 50% of the total project cost)
  • $400,000, 2nd lien with 504 loan, 20 year, fixed rate (loan obtained through a CDC, funded through an SBA-guaranteed debenture, covering up to 40% of the total project cost)

$100,000, borrower contribution (contribution from the borrower of at least 10% of the total project cost)

How 504 Loan Funds May Be Used

The use of proceeds from 504 Loans must be used for fixed assets (and certain soft costs), including:

  • The purchase of existing buildings;
  • The purchase of land and land improvements, including grading, street improvements, utilities, parking lots and landscaping;
  • The construction of new facilities or modernizing, renovating or converting existing facilities;
  • The purchase of long-term machinery; or
  • The refinancing of debt in connection with an expansion of the business through new or renovated facilities or equipment.

Small Business Owner Advantages

  • Low Borrower Injection (as little as 10%)
  • Up to 90% financing, to preserve working capital
  • Fixed Rate up to 40% of Total Project Cost
  • Low Market Interest Rates

Private Lender (Bank) Advantages

  • Reduced Risk with 50% Loan to Value
  • First Lien Position on Assets Financed, and are Salable on the Secondary Market
  • Saves A/R and Inventory for Additional Financing
  • Enhanced Portfolio Diversity with CRA Qualified Debt

Eligible Use of Funds

  • Land and Building Acquisition
  • Building Expansion
  • Building Construction or Renovation
  • Machinery and Equipment

Eligible Businesses

The company must be a for-profit corporation, partnership, LLC, or proprietorship whose tangible net worth does not exceed $15 million, and whose average profit after tax for the preceding two years, does not exceed $5 million.

Project Size

Private Lender: the maximum loan amount of the private lender is not limited by the SBA. However, the private lender must fund at least 50% of the total project cost.

Maximum Loan Amount (Debenture): While there is no maximum project size, the maximum SBA loan amount (debenture) is $5 million. Small manufacturers or specific types of energy projects (as described in the energy project section) may qualify for a $5.5 million debenture.

Generally, a business must create or retain one job for every $65,000 guaranteed by the SBA.  Small manufacturers must create or retain a ratio of one job for every $100,000.  As an alternative to job creation or retention, your business may qualify if it meets a community development or public policy goal as long as the CDC maintains its portfolio job average requirements. (More detail can be found on the SBA’s website).

Maturity Terms & Interest Rate

Maturity Terms:

  • 20 years for Real Estate
  • 10 years for Long-term Machinery and Equipment

Interest Rate:

  • Private Lender: Rate is negotiated with the small business owner
  • SBA: Rate is fixed for the term of the loan

Ineligible Businesses

  • Passive Investment Companies
  • Real Estate Investment Companies
  • Non-Profit Corporations
  • Financial Institutions