SBA 504 Loans: Your best guide To SBA/CDC Real Estate & Equipment Loans

The SBA 504 loan is a financing program offered by the Small Business Administration and Certified Development Companies. The loans, while selective, are open to eligible, for-profit small businesses operated by Usa citizens and resident aliens. 504 loans are fit for smaller businesses in search of?fixed interest rates with long-term financing and smaller deposit.
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  • The CDC/504 Application for the loan Process
  • Final Thoughts
  • What Is The SBA CDC/504 Loan Program?

    The SBA CDC/504 Loan Program is really a financing program backed through the Sba. The goal of this program would be to promote business growth and job creation through the support of small businesses.

    The SBA connects recipients having a Certified Development Company (CDC). CDCs are non-profit organizations, certified and controlled by the SBA. These CDCs provide fixed-rate, long-term financing together with lenders and also the SBA. There are around 260 CDCs in america, which serve their local economies.

    How Can SBA 504 Loans Be utilized?

    Often, 504 loans are referred to as SBA Real Estate Loans or SBA Real estate Loans due to their strict usage policies, which will make them a great choice for purchasing fixed assets, like property.

    In fact, proceeds from a small business property loan are only able to be utilized for fixed assets?and few soft costs. The cash can’t be employed for capital, inventory, or consolidating or paying debt.

    Recipients of 504 Loans may use the proceeds to:

    • Purchase an existing building
    • Purchase land and land improvements
    • Construct new facilities
    • Renovate existing facilities
    • Purchase machinery and equipment for long-term use
    • Refinance debt in connection with renovating facilities or equipment

    If your needs for financing don’t fit the bill, consider looking into the SBA 7(a) Loan Program, that provides broader choices for small businesses.

    CDC 504 Loan Pros & Cons

    If you’re wondering whether this loan program is right for your small business, check out the pros and cons. Some small business owners prefer the 504 within the 7(a) loan and vice-versa. Think about the following if you’re looking into getting a 504 loan:


    • Offers 90% financing, leading to savings and improved cash flow for small businesses.
    • 504 Loan recipients often enjoy lower rates compared to those with traditional loans.
    • Recipients can include any 504 refinancing costs within the given loan.
    • Borrowers have the option to use given equity within the fixed asset as collateral.
    • The 504 Loan offers lower down payments of around 10%, when compared with 25–30% on traditional loans.
    • Recipients of 504 loans can receive long-term capital: 20-year, fully amortized financing.


    • The CDC 504 Loan is selective about borrowers and usage of funds. If you meet all qualifications, this is usually a positive for the business. For many businesses, however, this is often a burden. If you need funds for versatile needs and need a flexible loan, the 504 isn’t for you personally.
    • While borrowers can use funds to refinance eligible business operating expenses, there is a maximum 85% loan-to-value, meaning such operating expenses may not exceed 25% from the total value of eligible fixed assets. ??
    • Prepayment penalties exist throughout the first half of the borrowed funds term. These minute rates are usually 100% of great interest lost in the newbie, 90% of interest lost within the second year, and so forth, until the tenth year, that is equivalent to 0%.

    SBA 504 Loans VS 7(a) Loans

    If you’ve been doing your research on SBA loans, you know that 7(a) loans, like 504 loans, may be used to purchase real estate and equipment, construct, and renovate. So, what’s the distinction between a 504 loan and a 7(a) loan?

    Do You Qualify? Borrower Requirements For SBA 504 Loans

    To qualify for an SBA 504 Loan, there are strict requirements a business must meet:

    • Borrowers must first meet the SBA size requirements
    • Businesses should have a tangible net worth under $15 million.
    • You must also come with an average net income under $5 million (after federal income tax) the 2 previous years before applying.
    • Businesses should be for-profit
    • Businesses must be owned by U.S. citizens or resident aliens with permanent resident status.

    For businesses wishing to gain financing for projects involving property, the business must occupy a minimum of 51% of rentable property for existing structures. Businesses planning to build a space must intend to occupy a minimum of 60% of rentable property, with the intention of occupying 80% with growth.

    As the 504 Loan is intended to directly create jobs, borrowers must also satisfy the job creation and retention requirement. This requires the business to create one job per $65,000 received in SBA financing. If the borrower is really a small manufacturer, they must create one job per $100,000 borrowed.

    If your company engages in other credible community goals, the task creation requirement could be waived. Such initiatives include community development goals, public policy goals, or modernizing facilities for health, safety, or environmental reasons.

    There is no minimum credit score required, although it is best you know in advance whether you really can afford a small business loan.

    SBA 504 Loan Terms, Fees, and Amounts

    SBA 504 Loan Interest Rates & Fees

    504 loans offer fixed rates and costs, set by the?current market rate for 5-year and 10-year Treasury issues. If you’re receiving financing via a 504 loan, you may expect long-term fixed rates. SBA loan rates and fees will vary depending on the loan amount, lender, etc. 504 fees often include:

    • Interest Rates
    • CDC Servicing Fees
    • Central Servicing Agent Fees
    • SBA Guarantee Fees
    • Bank Fees
    • Third Party Fees (if applicable)
    • Prepayment Fees

    SBA 504 Loan Borrowing Amounts

    There is no maximum project size for businesses trying to get a 504 loan. There’s, however, a maximum SBA loan amount of $5 million. This debenture varies if the borrower is a small manufacturer or is planning an eligible energy project. Such borrowers can qualify for as much as $5.5 million.

    The CDC/504 Loan Application Process

    Businesses trying to get a 504 Loan ought to be prepared to provide proof of eligibility, indebtedness, and creditworthiness.?The 504 Application for the loan is roughly thirteen pages long and requires info on project cost, energy efficiency goals, debenture pricing, etc. When the application is completed, it should be submitted to the CDC, that will then forward the data towards the SBA Loan Processing Center.

    Final Thoughts

    The SBA 504 Loan Program is a superb option for small businesses in need of cash for fixed assets, expansion, or modernization. If you want fixed interest rates, long terms, along with a smaller deposit, this might be for you personally. Check out our SBA Finance calculator to estimate everything you need to know about your individual loan.

    If 504 loans aren’t quite what you’re looking for, try checking the 7(a) Loan Program, which offers wider flexibility for a lot of small businesses. Trying to get financing can be an arduous task, so always consider your individual business making your choice based on what’s right for you!