SBA 504 Benefits     SBA 504 Fees     SBA 504 Loan Structure


The 504 Loan Program provides growing businesses with long-term, fixed-rate financing for major fixed assets such as land, buildings, machinery and equipment. A typical 504 project includes a loan secured with a senior lien from a private-sector lender covering up to 50 percent of the project cost, a loan secured with a junior lien from CMDC (backed by a 100 percent SBA-guaranteed debenture) covering up to 40 percent of the cost, and an equity injection of at least 10 percent from the small business.

Who Is Eligible for 504 SBA Loans?

Businesses seeking financing through the SBA 504 Loan Program must:

  • Be a "for profit" business that has a net worth of no more than $20 million and a net profit after tax averaging less than $6.5 million for the two years preceding the loan request. In addition, the owners of the business must be within SBA's personal liquidity guidelines.
  • Meet job creation and/or job retention goals determined by the SBA loan amount or meet certain economic development objectives.
  • Have a private lender commitment for 50% of the total project cost and be able to contribute the minimum equity injection which is at least 10%. If the project involves a "single purpose facility the minimum equity injection is 15%. For businesses that are less than 2 years old the equity injection increases an additional 5%.

SBA 504 Maximum Debenture:

A 504 Project must achieve at least one of the following Economic Development Objectives:

1. Job Creation or Retention (Dollars per Job):

  • A Project must create or retain one Job Opportunity per an amount of 504 loan funding that will be specified by SBA from time to time in a Federal Register notice. Such Job Opportunity average remains in effect until changed by subsequent Federal Register publication.
  • At least 1 Job Opportunity must be created or retained per every $90,000 of project debenture ($140,000 for Small Manufacturers (defined as a Small business with its primary NAICS Code in Sectors 31, 32, and 33 with all its production facilities located in the United States) and projects that meet an energy public policy goal.

2. Other Economic Development Objectives:

A Project that achieves any of the following community development or public policy goals is eligible if the CDC's overall portfolio of 504 loans, including the subject loan, meets or exceeds the CDC's required Job Opportunity average. Loan applications must indicate how the Project will meet the specified economic development objective. 

A. Community Development goals: 

  • Improving, diversifying or stabilizing the economy of the locality; 
  • Stimulating other business development; 
  • Bringing new income into the community; 
  • Assisting manufacturing firms (North American Industry Classification System (NAICS), Sectors 31, 32, 33); or 
  • Assisting businesses in Labor Surplus Areas as defined by the Department of Labor. 

B. Public Policy goals: 

  • Revitalizing a business district of a community with a written revitalization or redevelopment plan; 
  • Expansion of exports; 
  • Expansion of small businesses owned and controlled by women as defined in section 29(a)(3) of the Act, 15 U.S.C. 656(a)(3); 
  • Expansion of small businesses owned and controlled by veterans (especially service-disabled veterans) as defined in section 3(q) of the Act, 15 U.S.C. 632(q);
  • Expansion of minority enterprise development (see § 124.103(b) of this chapter for minority groups who qualify for this description); 
  • Aiding rural development; 
  • Increasing productivity and competitiveness (retooling, robotics, modernization, competition with imports); 
  • Modernizing or upgrading facilities to meet health, safety, and environmental requirements; 
  • Assisting businesses in or moving to areas affected by Federal budget reductions, including base closings, either because of the loss of Federal contracts or the reduction in revenues in the area due to a decreased Federal presence; 
  • Reduction of rates of unemployment in labor surplus areas, as such areas are determined by the Secretary of Labor; 
  • Reduction of energy consumption by at least 10 percent; 
  • Increased use of sustainable design, including designs that reduce the use of greenhouse gas emitting fossil fuels, or low-impact design to produce buildings that reduce the use of non-renewable resources and minimize environmental impact; or
  • Plant, equipment and process upgrades of renewable energy sources such as the small-scale production of energy for individual buildings' or communities' consumption, commonly known as micropower, or renewable fuels producers including biodiesel and ethanol producers.

A “Small Manufacturer” is defined as a small business concern that has:

  • Its primary business classified in sector 31, 32, or 33 of the North American Industrial Classification System (NAICS); and All of its production facilities located in the United States.

An “Energy Efficiency Project” must:

  • Reduce the borrower's energy consumption by at least 15%, generate renewable energy, or produce renewable fuels such as biodiesel and ethanol.

What Funds May Be Used For:

Proceeds from 504 loans must be used for fixed asset projects such as:

  • Purchasing land and improvements, including existing buildings, grading, street improvements, utilities, parking lots and landscaping
  • Construction of new facilities, or modernizing, renovating or converting existing facilities
  • Purchasing long-term machinery and equipment
  • Refinancing under certain circumstances. Contact us for further information.

Collateral Requirements:

  • The 504 loan is typically secured with a subordinate lien on all project assets. 
  • The SBA 504 loan must have a security interest in all project assets. Existing prior liens can be recognized in the case of building expansions and renovations. 
  • Personal guarantees are required from all principals owning 20% or more of the operating company and borrowing entity . 
  • If the business is a start-up or the asset being financed is considered single purpose or the credit is unusually risky, additional collateral may be required. 
  • "Key Man" life insurance is typically required unless there is strong management succession.

Terms and Interest Rates:

Interest rates on 504 loans are set to an increment above the current market rate for five-year and 10-year U.S. Treasury issues. Maturities of 10, 20 and 25 years are available.

See Current SBA 504 Loans Rates