What is a SBA 504 Loan?

The United States Small Business Administration (SBA) enables growing businesses to secure long-term, fixed-rate financing for commercial industrial real estate and/or major machinery and equipment through the SBA 504 Loan Program. The program is designed to promote local economic development by helping healthy, growing businesses finance the acquisition of long-term fixed assets, including land, buildings, and major machinery and equipment. The 504 Loan Program gives small business owners access to the same low-cost, fixed-rate, long-term financing that large businesses have through the bond markets.

Why should I consider a SBA 504 Loan?

The SBA 504 Loan Program offers many benefits to small businesses. The benefits include low down payment (allowing the small business to preserve working capital), longer terms, and larger loan amounts than may be available through a conventional loan. In most cases, the borrower's down payment will be 10% of project costs. If an appraisal deems a building as single purpose or if the business has less than 2 years of operating experience, additional injection (down payment) will be required. In addition, interest rates on the SBA 504 Loan will be below market and the rate will be fixed for the loan term.

What is a CDC?

A Certified Development Company (CDC) finances business expansion through the purchase or development of a building and/or major equipment via the SBA 504 Loan Program. CDCs are certified by the SBA to offer the SBA 504 Loan Program. CMDC's professional staff will work directly with you to tailor a financing package that meets program guidelines and the credit capacity of your business.

Who is Eligible?

Independently-owned, for-profit businesses that meet 504 project requirements are eligible. Net worth must be $20 million or less, and the average net profits after taxes cannot exceed $6.5 million per year for the previous two years.

What is the Turnaround Time?

We strive to give a 24-48-hour Eligibility Review. The procedure from a completed application submission to disbursement of funds takes approximately 30 to 90 days, depending on the complexity of the project and the loan.

How long do you have to be in business to qualify?

There is no requirement regarding length of time in business; however, start-up businesses are subject to additional injection (down payment).

How much can I borrow?

A CDC financed project can be of any size, but the SBA backed portion of the loan is usually limited to 40% or $5 million. However, in some instances, the SBA backed portion can go up to $5.5 million. The minimum debenture is $50,000 with typical projects ranging in size from $200,000 to $13,750,000 million.

How can my 504 funds be used?

504 loans may be used for:

  • Land or building acquisition
  • Building construction or remodeling
  • Acquisition of fixtures and heavy machinery

The qualifying business must become the primary occupant of the property financed. Proceeds cannot be used for working capital or costs unrelated to the project.

What are the collateral requirements? Will I have to pledge my home?

The subject property to be financed will be the collateral. CMDC does not typically take personal residences as collateral. However, on a case-by-case basis, CMDC may exercise the option to take additional collateral.

What fees are involved?

  • SBA Fees: Approximately 2.5% of SBA portion of loan.
  • Lender Fees: Negotiated with lender, but typically 1% or 2% on lender loan.

ALL SBA fees and most lender fees are financed, if supported by the appraisal.

What costs can be financed?

All costs that are directly attributable to the purchase or construction project can be financed, assuming that the appraisal is high enough.

Can my down payment be other than cash?

Yes, the down payment can be cash or land value, which can include building, structures, and other site improvements that will be part of the project property, previously acquired.

Can my equity injection (down payment) be borrowed?

Preferably the borrower will put at least 10% of their own funds into the project. The down payment can be borrowed, but owners must show that there is sufficient income to service the debt.

How is my interest rate calculated, and can I lock in the rate today?

The interest rate on the SBA loan is tied to the 5 or 10 year U.S. Treasury rate in effect on the date of funding and is fixed for the loan term. The rate cannot be locked in prior to funding.

Can the building be owned by an entity other than the operating company?

Yes, a real estate holding company can own the building. However, in this scenario, the operating company, the real estate holding entity, and all individuals with 20% or more interest must guarantee the loan.

Can I refinance a building I already own?

SBA allows for Refinance with Expansion and without Expansion. Please reach out to a loan officer with questions.

If the operating company is leasing the building from a real estate holding entity, what documentation is needed?


If the borrower is different from the operating company, there must be a lease between the borrower and the operating company for 100% of the property being financed with a 504 loan. If there are third-party tenant(s), the sublease(s) must be between the operating company and the third party tenant(s).

Subordination Agreements

Every lease and sublease on the property must be made subordinate (or junior) to the 504 mortgage. The borrower and the operating company must sign the Subordination Agreement related to their lease. The operating company and any subtenants must sign the Subordination Agreement related to their lease.

Is my loan assumable?

Yes, SBA 504 loans are fully assumable to credit qualified applicants. Contact CMDC for more info at 763-784-3337.

Is there a prepayment penalty?

Yes. For 25 and 20 year term loans, there is a declining prepayment penalty in the first 10 years on the SBA portion of your loan. For a 10 year term loan there is a declining prepayment penalty in the first 5 years on the SBA portion of your loan.

Is life insurance required?

A collateral assignment of life insurance is typically obtained on key business owners.