SBA 504 LOAN: Definition, Rates, Calculator, Programs


Buying a property or major set of tools is a significant investment for the growth of your company. Finding an inexpensive loan is critical for the success of a business. With an investment financing loan like the SBA 504 loan, an organization can get a low, fixed interest rate loan for a period of up to 25 years, and put as little as 10% down.

Although SBA loan programs are well-known for funding start-ups and small enterprises, the SBA 504 loan program is unique. It lowers the cost of purchasing fixed assets for businesses of all sizes. It also allows them to invest in themselves and their communities.

Learn more about the advantages of the SBA 504 loan program for you.

What is an SBA 504 Loan?

A project that can be funded with an SBA 504 loan is defined as “the acquisition or lease, and/or improvement or renovation of long-term fixed assets by a small firm using 504 financings for use in its business activities.” As we’ll see momentarily, this could include real estate acquisition and growth projects.

SBA 504 loans provide long-term (up to 25-year) financing for substantial business investments such as real estate and machinery.

There are three sources of funding for every 504 loan:

  • 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%.

In some instances, federal funds account for more than half of the overall project cost. The maximum size of an SBA debenture is normally $5 million, while there are a few exceptions (Small Manufacturers and Energy Eligible Public Policy Projects) that allow for debentures up to $5.5 million. (A SBA debenture must be worth at least $25,000 to qualify.)

See the details of SBA 504 LOAN: Definition, Rates, Calculator, Programs

Why SBA 504 loan?

The 504 is one of the greatest financing alternatives for small business owners today because it is fixed-cost and long-term, as well as SBA-backed.

Here are reasons to choose SBA 504 loans:

  • While securing stability, an entrepreneur can build equity. Once a building or piece of equipment is paid off, a company can keep earning the same amount of money without having to pay a monthly property expense, or even rent the space out for a profit to other companies.
  • An entrepreneur can use a 504 loan to buy real estate or machinery for his or her business. He or she then receives tax benefits and real estate appreciation while locking in occupancy costs for the next 20 years.
  • You understand the value of liquidity as an entrepreneur. The 504 loan allows the entrepreneur to save working capital by allowing him or her to finance up to 90% of the project cost with a 10% down payment (compared to 25% or 30% with a regular bank).
  • This program was designed by the SBA (Small Business Administration) to make business property loans more accessible to entrepreneurs, thereby improving the economic health of local communities.
  • The 504 loan is a fully amortized 20-year loan. This allows a small business owner to pay for a facility over time while avoiding traditional lenders’ dangerous loan call conditions.
  • The 504-loan has low-interest rates that fluctuate depending on market conditions.
  • Instead of worrying about market instability or shifting rates, an entrepreneur can fix his or her business occupancy costs using SBA 504 loan financing.

See our article on SBA LOANS Guide: How to Apply, Eligibility (+ Free easy tips)

SBA 504 CDC loan requirements 

Businesses that seek an SBA loan must meet several criteria, including the following:

  • Be a for-profit company based in the United States;
  • Meet the SBA’s industry-specific small business size requirements;
  • Meet a “credit elsewhere” test, which basically says the company won’t be able to acquire equivalent funding anywhere else;

Businesses engaged in legal gaming, pyramid schemes, life insurance firms (though life insurance agents may be eligible), industries largely engaged in lobbying or speculative businesses, apartment buildings and mobile home parks, and others are often unsuitable for these loans.

The application may be denied if the owner has previously caused a loss to the government (for example, an unpaid federal tax lien that is not in a repayment plan or a defaulted student loan that is not under rehabilitation).

How to Obtain an SBA 504 Loan

A Certified Development Business and a bank or credit union both fund SBA 504 loans, but it is the development company that processes your application, coordinates financing, and submits the loan package to the SBA. The SBA’s website has a list of participating Certified Development Companies.

To apply for an SBA 504 loan, you’ll need the following documents:

  • Personal and business tax returns (three years).
  • Financial statements for both the business and the individual.
  • A business plan.
  • Accounts payable and receivable are two types of accounts.
  • Estimates from the contractor (for construction loans).
  • Documentation of the costs (for equipment loans).

This list is not exhaustive, and your 504 loan application may require additional evidence.

SBA 504 loan Rates

SBA loans have the lowest interest rates on the market, but they are subject to fluctuate depending on the Federal Reserve’s actions.

A typical lender, such as a bank, contributes 50% of the loan, while a certified development firm contributes up to 40%. The SBA guarantees the CDC portion of the loan in full.

The following are the main components of SBA 504 loan terms:

The interest rates for CDC/504 loans are often lower than those on SBA 7(a) loans. The following are the most recent projections:

  • For 10-year loans, the effective rate is around 2.96 per cent.
  • For 20-year loans, the effective rate is around 3.61 per cent.

You’ll be given an effective interest rate when you apply, which is the total of the three fees plus the Treasury bond rate. However, you’ll have to pay the SBA a one-time fee of 2.15 percent, as well as some other expenses, bringing your total cost of borrowing (or annual percentage rate) up somewhat from your effective rate.

Prepayment premiums, which are equivalent to prepayment penalties in different terms, must be paid by borrowers who prepay during the first half of the 504 Loan term.

SBA 504 Loan Calculator

Simply enter the Estimated Project Cost (the loan amount you are either offered or seeking), Bank Loan Term (the repayment term in years), and Current Bank Interest Rate to help you better understand how the SBA 504 Loan works and provide you with an estimate.

The interest rate on the SBA 504 Loan differs depending on the lender and your requirements, and the SBA establishes a maximum rate for each of their loan programs based on the loan period.

Companies that provide SBA 504 loans

These loans can only be made by a small number of SBA-approved CDC lenders. There are also non-CDC lenders who collaborate with CDCs to make these loans.

Who can take advantage of the SBA 504 Loan Program?

A small business must meet the following criteria to be eligible for an SBA 504 loan:

  • The corporation must be for-profit and not publicly traded.
    Citizens or registered aliens must own 51% of the company (with a green card.)
  • The company must conduct business in the United States or its territories.
  • A single proprietorship, partnership, limited liability company, or corporation must be the type of business.
  • The tangible net worth of the company cannot exceed $15 million.
  • For the two full fiscal years preceding to application, the business’s average net income after federal income taxes (excluding carry-over losses) cannot exceed $5 million.
  • Loans are not available to enterprises that engage in real estate speculation or investment.


The 504 loan program is managed by the SBA for two purposes. The first is the expansion of a small business. By providing borrowers with the funds to purchase key equipment and operating space, this program allows them to build their enterprises more quickly than they might otherwise.

The second reason for this program’s existence is to create jobs. Borrowers must verify that the loan will generate or sustain employment, either directly or indirectly, under the 504 loan program. Smaller businesses must link every $120,000 loaned to one employment, while larger enterprises must link every $65,000 borrowed to one job. Businesses will be able to develop structures and purchase heavy equipment more easily if the government makes it easy for them to do so.

READ ALSO: FATCA REPORTING: Best Practices and Requirements

FAQs on SBA 504 LOAN

What is the interest rate on SBA 504 loan?

The program currently allows for interest rates of 2.231 percent, 2.364 percent, and 2.399 percent for 10, 20, and 25 years, respectively.

How does the SBA 504 program work?

The 504 scheme operates by dividing the loan amongst three parties. The business owner contributes a minimum of 10%, a traditional lender (usually a bank) contributes 50%, and the Certified Development Company (CDC) contributes the remaining 40%.

How hard is it to get an SBA 504 loan?

An SBA loan is not difficult to obtain! … The 504 loan is unique in that it is a collaboration between a non-profit Certified Development Company (CDC) like TMC Financing, which administers the SBA portion of the loan, and a traditional lender like a bank or credit union.

How long does it take to get an SBA 504 loan?

The time it takes for SBA 504 loans to be approved varies greatly, just like it does for other types of loans. From application to funding, the loans take between 30-45 days on average. However, approval can take anywhere from one to six months.

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