What are the advantages of an SBA 504 Loan?

Advantages for commercial lenders

  • Reduce risk on projects - resulting in 50% loan-to-value-ratio
  • Fixed or variable rate option on lender loan
  • Meets economic development and community reinvestment goals
  • Keeps the lender competitive by offering attractive financing for its clients

Advantages for small business owners

  • Low down payment - helps conserve valuable operating capital
  • Below market fixed rate - avoids future rate fluctuations, keeps costs of loan low
  • Long-term - brings debt service in line with cash flow generated by business

How Does CMDC Work with Lenders and What is Involved?

CMDC's team of 504 experts ensure that all SBA requirements are met so that you, our lending partner, can focus on the lender portion of the business loan without having to navigate all of SBA 504 Loan intricacies. The process includes:

  • Lender for first mortgage processes loan as it would any conventional loan request.
  • CMDC works with the lender to collect documents from the borrower that are required for underwriting and approval.
  • Lender utilizes its own loan documents to close their loan.
  • Appraisals and environmental reports are ordered naming all parties (lender, CMDC, and SBA) with copies provided to CMDC as received.
  • Lender generally provides "interim" or "bridge" financing while CMDC's 504 loan is a permanent take-out loan. Thus, Lender would provide the full 90% financing up front during construction, renovation, or closing period based on the 504 commitment to take out the applicable portion of the interim financing once the business occupies the property.
  • When the 504 loan closes, the lender provides copies of its loan documents, draw schedules (for construction or renovation projects), certifies that there has been no adverse change in the borrower's financial condition, and agrees to various provisions such as to provide 60 days advance written notice of default prior to foreclosure proceedings.

What are the down payment requirements?

  • Typically, the small business contributes 10% of the project costs.
  • The down payment increases to 15%, if the business is a start-up (when management has less than 2 years of operating experience) AND the loan finances a single-use property
  • The down payment increases to 20%, if the project is for a single use property AND is being financed for a start-up business.

What businesses are eligible?

The applicant must be a for-profit business whose business net worth is less than $20 million and whose after tax income is $6.5 million or less, on average, for the last two years.

What projects are eligible and what are the costs?

504 financing is used to acquire, construct, renovate or expand an owner occupied facility. It can also be used to acquire major machinery and equipment with a useful life of at least 10 years. In addition to the acquisition and construction costs, the "soft costs" (appraisals, environmental, construction interest, closing costs, etc.) can also be financed in the 504 loan. This allows the business to preserve working capital that will be needed in the larger facility.

What are the occupancy requirements?


Financing of:


Occupancy After 10 Years

Allowable Permanent Lease

Existing Building




New Construction




What is the project size range?

Project sizes typically range from $200,000 to $13,750,000 with the 504 loan size ranging from $150,000 to $5,000,000 (and up to $5.5 million for manufacturers meeting SBA defined NAICS codes). The first mortgage lender can exceed 50% of the project total, which enables larger companies to take advantage of the benefits of the 504 loan up to the maximum amount allowed.

What are the fees charged to the lender?

The SBA must collect from the lender a one-time Third Party Lender Participation Fee equal to 50 basis points on the lenders permanent first mortgage in a project when the third party lender is in a senior credit position to the SBA.

Can pre-existing debt on the project property be refinanced with SBA 504 Loan proceeds?

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

Is life insurance a requirement?

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