SBA 504 Loans: Financing for Buildings and Big Equipment
We may earn a fee from partner links.
Full disclosure below.
Ten years in business banking before co-founding Lending Gurus. · Updated Nov 12, 2026
An SBA 504 loan is long term, fixed rate financing for major fixed assets, like a building, land or heavy equipment. It’s a different animal from the more flexible SBA 7(a) loan. A 504 deal usually has three pieces: a bank loan, a loan from a Certified Development Company backed by the SBA, and your own down payment. This guide covers how 504 loans are structured, what they can and can’t pay for, who’s eligible, rates and terms, and how to apply. To test what a payment might look like, try our SBA loan calculator.
What is an SBA 504 loan
Per sba.gov, the 504 program provides long term, fixed rate financing for major fixed assets that promote business growth and job creation. The maximum 504 loan amount is $5.5 million, and the SBA’s program comparison lists a range of $25,000 to $5.5 million.
504 loans are available only through Certified Development Companies, or CDCs. These are community based nonprofit partners that the SBA certifies and regulates. A CDC originates the 504 loan together with a senior lender, usually a bank.
How a 504 loan is structured
The SBA’s lender page describes a typical 504 project like this:
| Piece | Share of project cost | Who provides it |
|---|---|---|
| Senior loan | Up to 50% | A private lender, with a senior lien |
| CDC loan | Up to 40% | A CDC, backed by a 100% SBA guaranteed debenture, with a junior lien |
| Down payment | At least 10% | You, the borrower |
That 10% equity is a big reason owners like 504 loans for real estate. Many conventional commercial real estate loans ask for more down. Your actual split depends on the project and the lenders. Some projects, like a newer business or a special purpose building, can need more than 10% down, so check with your CDC. On projects over $500,000, also plan for SBA hazard insurance on the building and equipment you pledge.
Illustrative example. Say a project costs $1,000,000 to buy and fix up a building. In the typical structure, a bank might fund up to $500,000, the CDC up to $400,000, and you put in at least $100,000. Each loan has its own rate and term, so run each piece through the calculator separately and add the payments together.
What you can use a 504 loan for
Per the SBA, 504 loans can pay for:
- Buying, building or renovating existing buildings or land
- Long term machinery and equipment with a remaining useful life of at least 10 years, including project related AI supported equipment or machinery for manufacturing
- Consolidating debt under conditions in 13 CFR 120.882(e), and repaying or refinancing “qualified debt” under 13 CFR 120.882(g)
And a 504 loan can’t pay for:
- Working capital or inventory
- Debt that doesn’t meet the qualified debt definition
- Speculation or investment in rental real estate
Need working capital too? That’s where a 7(a) loan or a working capital loan comes in. Financing machinery? Compare with equipment financing requirements and construction equipment financing.
Who is eligible
To be eligible for a 504 loan, the SBA says your business must:
- Be an operating business
- Operate for profit
- Be located in the U.S.
- Be small under SBA size requirements
- Not be a type of ineligible business
The SBA also lists general standards: qualified management expertise, a feasible business plan, good character and the ability to repay. And 504 loans “cannot be made to businesses engaged in nonprofit, passive, or speculative activities.” That’s why a business that buys a building to rent out to others usually doesn’t qualify, while a business buying a building to operate in can. The SBA suggests contacting a CDC in your area for full eligibility details.
504 rates, fees and terms
| Feature | What the SBA says |
|---|---|
| Maturity | Terms are typically 10, 20 or 25 years |
| Rate on the CDC portion | Fixed, and the CDC rate is typically pegged to an increment above the current market rate for 10 year U.S. Treasury issues |
| Fees | Fees typically run about 3% of the debt and can usually be financed with the loan |
| Max loan | $5.5 million |
The bank’s senior loan has its own rate and terms, set by that lender. For how 504 pricing compares with 7(a) caps, read SBA loan rates explained. And remember the roughly 3% in fees when you compare APRs. Our APR vs interest rate guide explains why.
Repayment on an active 504 loan goes through the Central Servicing Agent, usually by monthly ACH draws, per the SBA. Questions about balances or due dates go to your CDC. If you think you may miss payments, read what happens if you default on an SBA loan before it gets that far.
504 vs 7(a)
| SBA 504 | SBA 7(a) | |
|---|---|---|
| Max amount | $5.5 million | $5 million |
| Best for | Buildings, land, long life equipment | Flexible uses, including working capital |
| Rate | Fixed on the CDC portion | Fixed or variable, under SBA caps |
| Working capital | Not allowed | Allowed |
| Who you work with | A CDC plus a senior lender | An SBA lender |
If you’ll occupy the property and the main goal is real estate or big equipment, a 504 is worth a look. For everything else, start with the 7(a) guide. If a balloon payment on a current property loan is coming due, ask a CDC whether that debt counts as qualified debt for a 504 refinance.
Common mistakes to avoid
- Planning to lease out most of the space. 504 is for businesses that operate in the property. Passive and speculative real estate isn’t eligible.
- Forgetting the fees. Per the SBA, 504 fees typically run about 3% of the debt. They can usually be financed, but they still cost money.
- Mixing in working capital. Keep working capital and inventory needs in a separate loan, since 504 can’t cover them.
- Short life equipment. Equipment needs a remaining useful life of at least 10 years to qualify.
- Waiting too long to call a CDC. CDCs know the program rules best. Bring them in before you sign a purchase contract with tight deadlines.
How to apply for a 504 loan
- Find a CDC. Use the SBA’s CDC search or contact your local SBA office.
- Line up the project. Get a purchase agreement, construction bids or equipment quotes and a clear project cost.
- Show your 10% or more. Lenders want to see where the down payment comes from.
- Prepare financials. Business and personal tax returns, financial statements, a debt schedule and projections.
- CDC and bank underwrite. The CDC helps coordinate the bank and SBA sides.
If you need to compare other options
504 deals take time. If you need to compare other business funding while a 504 comes together, you can compare multiple offers through 1West. Partners make all funding decisions and set their own terms.
FAQ
How much down do you need for an SBA 504 loan?
In the typical structure the SBA describes, the borrower contributes at least 10% of the total project cost.
Can I use a 504 loan for working capital?
No. The SBA says 504 loans cannot be used for working capital or inventory.
What are 504 loan terms?
Per the SBA, terms are typically 10, 20 or 25 years.
Can I buy a rental property with a 504 loan?
No. The SBA says 504 loans can’t be used for speculation or investment in rental real estate.
Who makes 504 loans?
Certified Development Companies, together with a senior lender. The SBA certifies and regulates CDCs.
This guide is general information, not financial, legal or tax advice. Lending Gurus is a referral service, not a lender. Lenders and grant programs set their own rules, and partners make all funding decisions. Talk with your CPA or attorney about your situation. Read our editorial policy and advertiser disclosure.
Sources
- U.S. Small Business Administration, 504 loans
- U.S. Small Business Administration, SBA lenders (504 structure and program comparison)