# SBA 504 loans

Source: https://businessloanbroker.ai/business-loans/sba-504-loans/
Site: BusinessLoanBroker.ai (powered by Levr)

> An SBA 504 loan finances a building or heavy equipment with 10% down and a fixed rate on the CDC portion over 10 to 25 years. Costs and who qualifies.

An SBA 504 loan finances fixed assets, mainly a building your business will occupy or heavy equipment, with as little as 10% down. A bank funds 50% of the project, a nonprofit Certified Development Company funds 40% with a fixed rate backed by the SBA, and you put in 10%. Terms run 10, 20 or 25 years. It is the cheapest way to buy commercial property, and it takes 45 to 120 days.

## Key facts
- **Amounts:** CDC portion up to $5 million ($5.5 million for manufacturing and energy); projects often $500,000 to $15 million
- **Typical cost:** CDC portion fixed near treasury rates plus 2%; bank portion often 7% to 9%
- **Terms:** 10, 20 or 25 years, fully amortized
- **Time to fund:** 45 to 120 days
- **Minimums most lenders use:** 10% down (15% to 20% for startups and special purpose buildings), 51% owner occupancy, DSCR of 1.25, 680 credit

## What is an SBA 504 loan?

A 504 loan is really two loans and a down payment. A bank or credit union lends 50% of the project in first position at its own rate. A Certified Development Company, a nonprofit licensed by the SBA, lends 40% in second position, funded by an SBA backed bond with a fixed rate for the full term. You contribute the remaining 10%.

The money must go to fixed assets: buying, building or renovating owner occupied property, or equipment with a useful life of ten years or more. Working capital and inventory are not allowed; for those, see the [SBA 7(a) loan](https://businessloanbroker.ai/business-loans/sba-7a-loans/).

## Who qualifies for an SBA 504 loan?

Most 504 borrowers are established businesses with two or more years of profitable returns, owner credit of 680 or higher, and cash flow that covers the new payment at a [DSCR](https://businessloanbroker.ai/glossary/dscr/) of 1.25 or better. Your business must occupy at least 51% of an existing building, or 60% of a new build, and fit the SBA size limits on net worth and net income.

- Startups and special purpose buildings (hotels, gas stations, car washes) need 15% to 20% down instead of 10%.
- Declined most often: a loss on the last return, unpaid taxes, and projects where rent from other tenants is the real source of repayment. Passive investors should look at [commercial real estate loans](https://businessloanbroker.ai/business-loans/commercial-real-estate-loans/) instead.

## What does an SBA 504 loan really cost?

A typical example: you buy a $1,000,000 building. The bank lends $500,000 at 8% over 25 years, about $3,860 a month. The CDC lends $400,000 at a fixed 6.5% over 25 years, about $2,700 a month. You put in $100,000. Total payment is roughly $6,560 a month, and because the CDC portion is fixed, only the bank half can move with rates.

Fees on the CDC portion run about 2% to 3% of the loan and are financed into it. You will pay an appraisal, usually $2,000 to $5,000, an environmental report, title and legal costs. Compare the full cost against a 7(a) with the [SBA loan calculator](https://businessloanbroker.ai/tools/sba-loan-calculator/).

## How do you qualify, and what documents do you need?

Two lenders underwrite you, so expect to produce the file twice. The core is three years of business and personal tax returns, interim financial statements, a debt schedule, a personal financial statement for each 20% owner, and the purchase contract or construction budget. Equipment projects add vendor quotes. Buildings add an appraisal and often a Phase I environmental report, which the CDC orders.

Start with our [document checklist](https://businessloanbroker.ai/guides/document-checklist/), and read [DSCR explained](https://businessloanbroker.ai/guides/dscr-explained/) before you apply, because the lender will calculate it from your last return and the proposed payment. If it is under 1.25, add a larger down payment or negotiate a lower price first.

## How long does an SBA 504 loan take?

Typically 45 to 120 days from a complete application to closing, longer than a 7(a) because the bank and the CDC each approve separately and the SBA then authorizes the debenture. New construction adds months, since the CDC portion funds only after the building is complete, with the bank carrying an interim loan until then.

The appraisal and environmental report are the usual bottlenecks, each taking two to four weeks. Order them as soon as you have a signed purchase contract. Our guide to [how long business loans take](https://businessloanbroker.ai/guides/how-long-it-takes/) covers the rest of the timeline.

## When should you choose something else?

Choose an [SBA 7(a) loan](https://businessloanbroker.ai/business-loans/sba-7a-loans/) if the project mixes real estate with working capital or a business purchase, since 504 cannot fund those parts; our [7(a) versus 504 comparison](https://businessloanbroker.ai/compare/sba-7a-vs-504/) works through a mixed project. Choose a conventional [commercial real estate loan](https://businessloanbroker.ai/business-loans/commercial-real-estate-loans/) if you can put 20% to 25% down and want to close in 45 days with less paperwork, or if the property is an investment rather than your operating location.

Choose [equipment financing](https://businessloanbroker.ai/business-loans/equipment-financing/) for a single machine under about $500,000. It closes in days, and the 504 process is not worth the wait at that size.

## How do you apply for an SBA 504 loan?

Apply once on this site and your application reaches 504 lenders and CDC partners in your area, alongside conventional real estate lenders so you can compare the two. It is free for your business, and we are paid the same whichever lender you choose. Or ask your AI assistant to apply through our [MCP server](https://businessloanbroker.ai/agents/): it can read your returns and statements, fill the application and submit it, and offers come back to one place.

| Option | Down payment | Typical cost | Speed | Best for |
|---|---|---|---|---|
| SBA 504 | 10% to 20% | Fixed CDC rate plus bank rate | 45 to 120 days | Owner occupied buildings, heavy equipment |
| SBA 7(a) | 10% | Prime plus 3% to 6.5% | 30 to 90 days | Mixed projects, business purchases |
| Conventional CRE loan | 20% to 35% | 6% to 12% APR | 30 to 60 days | Investors, strong borrowers, speed |

## Questions and answers
**Can I use a 504 loan for working capital?**

No. The 504 program funds fixed assets only: land, buildings, renovations and long life equipment. If you need working capital or inventory alongside a property purchase, pair the 504 with a separate line of credit or use a 7(a) loan for the whole project.

**Is the SBA 504 rate fixed?**

The CDC portion is fixed for the full 10, 20 or 25 year term, and it is set when the debenture is sold, not when you apply. The bank portion is whatever the bank offers, often fixed for 5 to 10 years and then adjusted.

**Can I refinance an existing building loan with a 504?**

Yes. The program allows refinancing of existing commercial real estate debt, with or without expansion, as long as the property is owner occupied and the original debt was used for eligible fixed assets. Rules on how much cash you can take out change periodically.

**Is there a prepayment penalty?**

Yes on the CDC portion. It starts at roughly the debenture rate in year one and declines each year, reaching zero after ten years on a 20 or 25 year loan. The bank portion follows the bank's own terms, so ask before you sign.

## Related
- [SBA 7(a) loans](https://businessloanbroker.ai/business-loans/sba-7a-loans/)
- [Commercial real estate loans](https://businessloanbroker.ai/business-loans/commercial-real-estate-loans/)
- [SBA 7(a) versus SBA 504 loans](https://businessloanbroker.ai/compare/sba-7a-vs-504/)
- [DSCR explained: the cash flow test lenders use](https://businessloanbroker.ai/guides/dscr-explained/)
- [SBA loan calculator](https://businessloanbroker.ai/tools/sba-loan-calculator/)

## Apply
Apply for the business: https://apply.businessloanbroker.ai/signup?utm_source=direct&utm_medium=organic&utm_content=md-sba-504-loans
MCP server for AI agents: https://mcp.businessloanbroker.ai/mcp (docs: https://businessloanbroker.ai/agents/mcp/)