Loan program
SBA 504 Loans
SBA 504 loans offer long-term, fixed-rate financing for commercial real estate and long-life equipment through a Certified Development Company and a senior lender. SMB Compass can help you understand whether a 504 loan or another option fits your project.
However, the application process for SBA Loans is known to be lengthy and document-intensive, which can be a deal-breaker for those needing quick access to funds. Retrieving all the necessary documents alone can take up to half of the application time. But for those who are patient, the effort may be worth it because of the many benefits the loan offers.
Since SBA Loans are long-term loans with guarantees, every dollar must be accounted for, and the purpose of the funds must be documented at every step. This means identifying how the money will be spent can take time.
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An SBA 504 loan is long-term, fixed-rate financing for major fixed assets, such as buying or building commercial real estate or buying long-life machinery, offered through the U.S. Small Business Administration’s 504 program. Unlike most SBA loans, a 504 is made through a Certified Development Company (CDC), a nonprofit partner certified and regulated by the SBA, working together with a conventional lender. This guide explains how the structure works, what a 504 loan can and can’t pay for, and how to apply. For an overview of all SBA programs, see SBA loans and SBA 7(a) vs. 504 vs. microloans.
Key takeaways
- SBA 504 loans finance major fixed assets such as real estate and long-life equipment on fixed-rate, long terms.
- A 504 project is usually split between a senior lender, a CDC and the borrower’s down payment.
- The SBA says 504 loans can’t be used for working capital or inventory.
- Applications go through a Certified Development Company.
How does an SBA 504 loan work?
A 504 project is usually financed in three parts:
- A senior lender (typically a bank) provides a first loan, secured by a first lien on the asset.
- A CDC provides the 504 loan, backed by an SBA-guaranteed debenture and secured by a second lien.
- You, the borrower, contribute a down payment.
The split between the three varies by project; newer businesses and special-purpose properties typically need a larger contribution. The SBA lists the maximum 504 loan amount as $5.5 million (SBA).
What a 504 loan can finance
According to the SBA, 504 loans can be used for:
- Buying, building or renovating buildings or land
- Long-term machinery and equipment with a useful remaining life of at least 10 years (see heavy equipment financing and equipment financing for conventional options)
- Refinancing or consolidating certain qualifying debt, under conditions set in SBA rules
What it can’t finance
The SBA says 504 loans can’t be used for working capital or inventory, for debt that doesn’t meet the program’s “qualified debt” rules, or for speculation or investment in rental real estate. For day-to-day costs, see working capital loans.
Terms, rates and fees
- Terms: the SBA offers 10-, 20- and 25-year maturities.
- Rate: the 504 portion has a fixed rate, which the SBA says is pegged to an increment above the current market rate for 10-year U.S. Treasury issues.
- Fees: the SBA notes fees of approximately 3% of the debt, which may be financed with the loan.
Check the SBA’s 504 page or ask a CDC for current figures.
Who qualifies for an SBA 504 loan?
The SBA says your business must:
- Be an operating business and operate for profit
- Be located in the U.S.
- Be small under SBA size standards
- Not be a type of ineligible business (for example, passive or speculative businesses)
Lenders and CDCs also look for qualified management, a feasible business plan, good character and the ability to repay. For owner-occupied real estate, the business generally needs to occupy most of the property.
How hard is it to get a 504 loan?
504 loans involve more paperwork and a longer timeline than most business financing (see how long SBA loans take), because two lenders and the SBA are involved. Businesses with a solid operating history, steady cash flow and a well-defined fixed-asset project are the best fit. Startups and businesses with weak financials may find it harder, or may need a larger down payment. Our guide to SBA loan credit score requirements covers what lenders look for. To estimate payments, try the SBA loan calculator.
SBA 504 vs. SBA 7(a)
| SBA 504 | SBA 7(a) | |
|---|---|---|
| Best for | Real estate and long-life equipment | Broad uses, including working capital |
| Lenders | CDC + senior lender | Bank or SBA lender |
| Working capital | Not allowed | Allowed |
| Rate | Fixed on the 504 portion | Fixed or variable |
How to apply
- Define the project: the property or equipment, total cost and timeline.
- Gather documents: business and personal tax returns, financial statements, a business plan or projections, and details of the property or equipment.
- Find a CDC: 504 loans are available only through CDCs. The SBA has a CDC search.
- Secure the senior lender and complete the CDC application.
SMB Compass can help you understand your financing options, including whether an SBA program or a conventional loan is the better fit. Start your application.
Frequently asked questions
What is an SBA 504 loan used for?
Major fixed assets: buying or building commercial real estate and long-life machinery, plus certain qualifying refinancing.
Can I use a 504 loan for working capital?
No. The SBA excludes working capital and inventory. A 7(a) loan or a working capital loan is the usual alternative.
How much can I borrow with a 504 loan?
The SBA lists the maximum 504 loan amount as $5.5 million. Ask a CDC how that applies to your project’s total cost.
How long are SBA 504 loan terms?
10, 20 or 25 years, according to the SBA.
Sources
- U.S. Small Business Administration, 504 loans. https://www.sba.gov/loans/504-loans/. Accessed Nov 2026.
- eCFR, 13 CFR 120.882: Eligible project costs for 504 loans. https://www.ecfr.gov/current/title-13/chapter-I/part-120/subpart-H/subject-group-ECFRb53f5f70dbe22e4/section-120.882. Accessed Nov 2026.
- eCFR, 13 CFR 120.131: Leasing part of new construction or existing building. https://www.ecfr.gov/current/title-13/chapter-I/part-120/subpart-A/subject-group-ECFRf4e36c83c2b40a5/section-120.131. Accessed Nov 2026.
- U.S. Small Business Administration, SOP 50 10: Lender and Development Company Loan Programs. https://legacy.sba.gov/document/sop-50-10-lender-development-company-loan-programs. Accessed Nov 2026.
- U.S. Small Business Administration, 7(a) loans. https://www.sba.gov/loans/7a-loans/. Accessed Nov 2026.