What is the SBA 504 Loan?

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What is the SBA 504 Loan Program?

The 504 program is an U.S. Small Business Administration loan program designed to help Small Businesses INVEST in the assets they need for success.
INVEST in the Purchase of a Building for Your Small Business
Acquire a building for the start-up, expansion, or relocation of your business. This can include making changes to the property to meet your specific needs.
INVEST in the Construction of a New Building
Buy land and construct a brand new building that is perfect for your business operations.
INVEST in the Expansion of Your Existing Building
Do you need to expand your existing facility? 504 funds may be used to refinance your existing building debt, up to 50% of the total project cost, and provide money to expand your building.
INVEST in Equipment
Finance major machinery and equipment purchases needed for business operations. This may include manufacturing equipment, medical devices, or other specialized equipment.
INVEST in Furniture
Additionally, both Building and Equipment financing may also include Furniture & Fixtures needed for your business space.
INVEST in Green Energy
Finance Equipment to save Energy, like solar panels or energy-efficient lighting, and you may qualify for a higher loan amount, or additional funding under the Green Energy program.

How is the 504 Loan Structured?

50%

LENDER 1ST MORTGAGE

  • In some cases the 1st mortgage may be more than 50% to accommodate larger dollar projects.
  • You negotiate the terms and fees with the bank, and whether it’s a fixed or variable rate.
  • Lender’s Loan Term must be at least 10-years on 20/25 year project and 7-years on 10-year project.
40%

SBA 504 LOAN

  • Payment Terms of 10, 20, and 25-Years Available – No Balloon Payment, No Renegotiation.
  • Rate Fixed at 504 Loan Funding  
  • Fees on the 504 loan currently total approximately 2.17% of the loan amount and 0.5% of the first mortgage loan amount.
  • The 504 second mortgage cannot exceed $5 million, or $5.5 million for a Small Manufacturer or a Green Energy loan.
10%

BORROWER EQUITY

  • Borrower typically provides a 10% down payment; however, loans for new businesses (less than 2-years) or for special-use facilities, such as hotels/gas stations, will require a 15% down payment OR 20% when the project is both new and special-use.  

Sample Financing Breakdown

This breakdown would be for a project with total costs of $1 million:

Entity Loan Amount Percent of Project Term Interest Collateral
Private Lender $500,000 50% 10 years Market 1st Deed to Secure Debt
CDC/SBA $400,000 40% 20 years Below Market/Fixed 2nd Deed to Secure Debt
Business/Borrower $100,000 10% n/a n/a n/a