SBA 504 Loan Overview

sba 504 loan guide

Estimated reading time: 4 minutes

“It takes money to make money” is a saying that has been used for generations. As a small business owner, you have probably heard it – or said it quite often. The reason is that some money is needed to launch a startup business, and once it gets off the ground, money is required to help keep your company moving forward. If you need cash for your business, there are several funding options to consider, and finding the most appropriate one for your needs takes time and research.

Small Business Administration (SBA) loans are popular among business owners nationwide. Several SBA loans are available, and each has its unique terms and conditions, such as the guarantee percentage and loan amount. If you seek funding to purchase real estate or capital equipment or expand your existing operations, look at the SBA 504 loan, also referred to as an SBA CDC/504 loan. This Balboa Capital blog article provides an overview of the SBA 504 loan, including borrowing requirements, how to apply, and more.

What is an SBA 504 loan?

An SBA 504 loan is a business loan guaranteed by the Small Business Administration that is used for long-term financing for large business-related purchases such as real estate, capital equipment, machinery, and business expansion initiatives. This type of loan cannot be used for working capital, inventory, real estate rental, or consolidating or refinancing debt. As mentioned earlier in this blog article, an SBA 504 loan is also known as an SBA CDC/504 loan. The acronym CDC refers to certified development companies that offer this type of loan.

Unlike other SBA loans, such as the SBA 7(a) loan, three parties are involved with an SBA 504 loan. They are the business owner, the SBA-approved bank, and the SBA-approved certified development company (CDC). Remember that the SBA does not issue loans; it merely guarantees them.

Loan eligibility requirements.

The SBA 504 loan program is designed for US-based “for-profit” businesses with a net worth of $15 million or less and an average net income of $5 million or less in each of the two years before submitting an SBA 504 loan application. Certain types of businesses are not eligible for SBA 504 loans; they include nonprofits, religious institutions, and casinos. You can visit the Small Business Administration website for the complete list.

Next, other borrowing requirements need to be met. For example, you must have minimal debt, a robust credit score, and solid business revenues. In addition, you cannot have a history of delinquent payments on another government-back loan or funding product. You will also need to meet the borrowing requirements of the SBA-approved certified development company and the SBA-approved bank or lender you choose.

How to apply for an SBA 504 loan.

You will be glad to know that most national, regional, and local banks offer SBA 504 loans. You can also ask your banker to recommend an SBA-approved certified development company. Or, you can visit the Small Business Administration website and search for one in your area.

Once you pick a bank and a certified development company, it is time to begin the application process. The bank you choose will provide you with a checklist of items and information required to complete your application. Once your loan package is complete, the bank will submit it to the SBA for review. Following is a partial list of documents you will need to include with your SBA 504 loan application.

  • Personal income tax returns for the previous three years
  • Business income tax returns for the previous three years
  • Complete business plan
  • Business certificate/business license
  • Profit and loss statements
  • Accounts payable and receivable
  • Projected financial reports
  • Loan/financing application history

Because a bank and a certified development company are involved with SBA 504 loans, a lot of paperwork is involved. As a result, the loan process, from application submission to review to funding, can take two to three months if approved. Of course, this time frame will vary based on the bank and the certified development company and how much volume the SBA has when a loan application package is submitted.

SBA 504 Loan amounts.

SBA 504 loans of up to $5 million are available, with a maximum of $5.5 million for small manufacturers and green energy businesses, with 10, 20, or 25-year term options. Upon loan approval, the bank will fund 50% of the loan amount, the certified development company will fund 40% of the loan amount, and the business owner will cover the final 10% in the form of a down payment.

Finally, SB 504 loans have interest rates and fees. Loan rates are applied based on the current market rate for US Treasury issues, and they typically hover around 3% of the amount borrowed. The loan origination and servicing fees, among others, will vary depending on the bank and the certified development company, and they will be rolled into the total loan amount.


An SB 504 loan is an option to consider if your company needs funding for real estate, capital equipment, machinery, or business expansion. The down payment is relatively low, and you can take advantage of attractive interest rates over the long term.

Balboa Capital, a Division of Ameris Bank, is not affiliated with nor endorses the Small Business Administration. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.