SBA 504 loans offer affordable financing for large equipment or real estate-related purchases. With terms as long as 25 years and financing of up to $5.5 million, 504 loans are an ideal option for small-business owners who want to make big purchases — as long as they can qualify and afford to wait for funding.
Like most government small-business loans, SBA 504 loans have stringent requirements and a long application process. Closing can take several months.
Here's how the SBA 504 loan program works, who qualifies and how to apply.
SBA 504 loans, also known as CDC/504 loans, are small-business loans offered by Certified Development Companies and backed by the federal government. SBA 504 loans are one of the three core U.S. Small Business Administration loan programs, which also include 7(a) loans and microloans.
SBA 504 loans provide long-term financing (up to 25 years) for major business purchases like real estate or machinery. Loans are typically capped at $5 million, but some projects can qualify for up to $5.5 million.
Funding for each 504 loan comes from three places:
- A Certified Development Company (40%).
- A bank or credit union (50%).
- The small-business owner taking out the loan (10%). Under certain circumstances, business owners may need to put down as much as 20%.
You can estimate a potential down payment — as well as monthly and overall costs for a 504 loan — with our SBA loan calculator.
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SBA 504 loan rates, fees and repayment terms
Term length | 10, 20 or 25 years, depending on the loan. |
Interest rates | Rates are tied to the five- and 10-year U.S. Treasury notes and are typically around 3% of the amount financed. |
Down payment | 10%, but may be higher for startups or properties that can only be used for a specific purpose, like gas stations. |
Fees | Fees typically include SBA, CDC and bank or credit union fees, which vary. These fees are baked into the total loan amount, so a business owner’s only upfront cost is the 10% down payment. |
Borrowers need to meet general SBA loan eligibility requirements, as well as criteria specific to the 504 loan program.
SBA 504 loan requirements include:
- For-profit business operating in the United States.
- Net worth of less than $15 million.
- Average net income of less than $5 million for the two years prior to the application.
- The project will create or continue a certain number of jobs or meet other public policy goals.
General SBA loan requirements include:
- Meet the SBA definition of small business.
- Not delinquent on any government loans, including federal student loans.
- Strong personal credit.
Nonprofit organizations, life insurance companies, religious institutions, private clubs and businesses that primarily engage in lending, lobbying or legal gambling can't receive an SBA 504 loan.
A 504 loan can be used to purchase fixed assets that “promote business growth and job creation,” according to the SBA. These assets could include a new building, equipment or machinery.
You can also use a 504 loan to build or upgrade facilities, including utilities, streets or parking lots.
Unlike more general business term loans, a 504 loan can't be used as working capital or to purchase inventory, repay or refinance debt, or invest in rental real estate.
To get an SBA 504 loan, you'll need to find a Certified Development Company. These nonprofit economic development organizations will process your application, coordinate your financing and submit the loan package to the SBA. You can find a list of CDCs on the SBA’s website.
Once you’ve identified a CDC, you’ll need the following documents to apply for an SBA 504 loan:
- Business and personal tax returns for the last three years.
- Business and personal financial statements.
- Business plan.
- Accounts payable and receivable.
- Contractor estimates (for construction loans).
- Cost documentation (for equipment loans).
This list isn't exhaustive, and the CDC and bank you work with may require additional documentation to process your 504 loan application.
If your application is approved, SBA 504 loans typically take one to two months to close. But closing can take longer for larger and more complex purchases.
Next steps to getting an SBA loan:
- See current SBA loan rates.
- Compare NerdWallet’s best SBA lenders of 2022.
SBA 504 loans are a great choice for funding major facility improvements or equipment purchases, but they don’t make sense for every business owner.
- If you need faster funding: SBA Express loans offer quicker approval times than 504 loans but have lower borrowing maximums (just $500,000). If that amount isn’t enough for you, consider other fast business loans, like a business line of credit.
- If your expenses don’t qualify: You can’t use a 504 loan for working capital or to purchase inventory. An SBA 7(a) loan may be a better fit in those instances, provided you can meet the eligibility requirements.
- If your business can’t qualify: Online lenders are typically less strict about eligibility than government-backed loans. These lenders offer several options based on your business needs, including equipment financing, business auto loans and commercial real estate loans.
How much do you need?
We’ll start with a brief questionnaire to better understand the unique needs of your business.
Once we uncover your personalized matches, our team will consult you on the process moving forward.
Frequently Asked Questions
There are two key differences between SBA 504 and SBA 7(a) loans: how they can be used and how they’re funded.
SBA 7(a) loans can be used for a wide variety of expenses, including working capital, purchases of supplies or fixtures and refinancing business debt. SBA 504 loans, on the other hand, are designated for large equipment or facility purchases or upgrades. You can't use an SBA 504 loan for working capital or inventory.
Unlike SBA 7(a) loans, which are funded by a bank or credit union, funding for an SBA 504 loan comes from three sources: a Certified Development Company (40%), a bank or credit union (50%) and the small-business owner taking out the loan (10%). Under certain circumstances, business owners may need to put down as much as 20%.
It typically takes several months from the time you apply for an SBA 504 loan to when your loan is funded. That time frame can stretch as long as six months for more complex projects, such as real estate purchases.