SBA 504 Loans

SBA Loans

SBA 504 Loans

The SBA 504 program provides long-term, fixed-rate financing for the fixed assets your business relies on most — real estate and major equipment. In exchange for a more involved structure than SBA 7(a), it delivers something 7(a) can’t: a rate that never moves for the life of the loan.

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At a Glance

Loan Amount	$1 million+ preferred, up to $5 million (up to $5.5 million for manufacturers and qualifying energy-efficient projects) — SBA-guaranteed portion; total project cost runs higher with the bank's portion
Terms	10, 20, or 25 years, fixed
Down Payment	10% standard; 15–20% for startups and/or special-purpose properties
Financing	Up to 90% loan-to-value
Rate Type	Fixed for the full term
Prepayment Penalty	10-year declining schedule on 20/25-year loans; 5-year declining schedule on 10-year loans

How a 504 Loan Is Structured

A 504 deal is funded through two lenders working together on the same project:

That structure is what makes 90% financing possible – and because the CDC portion carries a government-backed, fixed rate for the full term, that piece of your payment never moves, regardless of what happens with market rates.

Down Payment / Equity Injection

Situation	Down Payment
Standard	10%
Startup (under 2 years) OR special-purpose property	15%
Startup AND special-purpose property	20%

Who 504 Is (and Isn't) For

The 504 program is built for established businesses with strong borrower profiles – not startups. We generally require a proven operating history and solid financials before structuring a 504 deal; a brand-new business is typically a better fit for other financing.

When SBA 504 Is Worth the Extra Complexity

Compared to SBA 7(a), a 504 deal involves more moving parts — a bank, a CDC, and typically a 60–90 day timeline versus 7(a)’s single-lender process. That added complexity tends to pay off when:

You want rate certainty for the long haul. The CDC portion is fixed for the full term, which matters most in a rising- or high-rate environment where a floating 7(a) rate could climb over time.
The project is large. Above roughly $1 million, 504's fee structure often comes out cheaper than 7(a)'s, where fees scale up with loan size.
You want a lower blended cost of capital. Because the CDC portion is fixed and government-backed, the blended rate across the bank's 50% and the CDC's 40% is often lower than a 7(a) rate on the full amount.
Multiple partners have unequal outside assets. 504 generally doesn't take a lien on a partner's personal or outside collateral the way 7(a) sometimes does — which matters when one partner has significantly more home equity or personal assets than another.
The project supports job creation or public policy goals. 504 is explicitly tied to these outcomes, which can strengthen the case for approval on the right kind of expansion project.

If speed, simplicity, or bundling other financing needs (working capital, a business acquisition) into one loan matters more than long-term rate certainty, SBA 7(a) is usually the better starting point.

Prepayment Penalty

504 prepayment penalties last longer than 7(a)’s and can’t be paid off in part — a 504 loan must be prepaid in full.

The bank/first-mortgage portion of the loan may carry its own, separately negotiated prepayment terms.

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FAQ's

Frequently Asked Questions

What can an SBA 504 loan be used for?

Purchasing, constructing, or renovating owner-occupied commercial real estate, and buying long-term equipment or machinery. It can’t fund working capital, inventory, or a business acquisition’s goodwill.

Can I refinance existing debt with an SBA 504 loan?

Yes – 504 has a dedicated debt refinance program for existing real estate and equipment debt. See our page on SBA refinancing for details.

How much down payment does a 504 loan require?

10% standard, rising to 15% for startups or special-purpose properties, and 20% if both apply.

Is the SBA 504 rate fixed or floating?

The CDC portion of the loan is fixed for the entire term. The bank’s portion of the financing follows its own rate structure.

Can a startup get an SBA 504 loan?

504 is built for established businesses with strong financials and a proven track record – we generally don’t structure 504 deals for startups. An SBA 7(a) loan or another financing path is usually the better starting point.

Is there a penalty for paying off an SBA 504 loan early?

Yes – a declining penalty over the first 10 years of a 20/25-year loan (or 5 years of a 10-year loan), and the loan must be prepaid in full rather than partially.

SBA Loans

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SBA 504 Loans

SBA 504 Loans

At a Glance

How a 504 Loan Is Structured

Down Payment / Equity Injection

Who 504 Is (and Isn't) For

When SBA 504 Is Worth the Extra Complexity

Prepayment Penalty

Ready to Explore an SBA 504 Loan?

Frequently Asked Questions

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