SBA 504 loans for commercial real estate
Long-term, fixed-rate financing to buy, build or renovate the building your business operates from, with as little as 10% down. We place your 504 with a lending partner and Certified Development Company that fit your project.
The pre-qualification form takes about a minute.
Who it’s for
The SBA 504 program finances commercial real estate and long-life equipment for small businesses that occupy their property. It’s built for growth: the U.S. Small Business Administration (SBA) backs it to help businesses buy or build instead of lease.
A good fit if you are:
- Buying the building your business will operate from
- Building a new facility or renovating space for your own business
- Looking for a long-term fixed rate on a large part of the loan
- Keeping cash in the business by putting as little as 10% down
Probably not the right fit if:
- You’re buying property as an investment. See conventional commercial loans or DSCR loans.
- You also need working capital or inventory. An SBA 7(a) loan can cover those in the same loan.
- Your request is under $250,000. Commercial real estate loans start at $250,000.
How a 504 loan works
A 504 is two loans plus your down payment, all closing together on one project.
| Piece | Typical share | Who provides it |
|---|---|---|
| First mortgage | 50% | A bank or other lending partner |
| Second loan | Up to 40% | A Certified Development Company (CDC), backed by the SBA |
| Your down payment | At least 10% | You |
A CDC is a nonprofit lender certified by the SBA to make 504 loans. Its second loan has a fixed rate for the life of the loan. The bank sets its own rate on the first mortgage.
All three shares are measured against total project cost. That can include land, the building, renovation and certain soft costs. We package your request so the bank and the CDC can review it together.
Typical terms
| Loan amount | From $250,000; the SBA portion is capped at $5 million per borrower |
| Total project size | No set maximum; the bank’s first mortgage isn’t capped |
| Down payment | As little as 10% of total project cost |
| Rate on the SBA portion | Fixed, set as a spread over U.S. Treasury yields |
| Rate on the first mortgage | Set by the lending partner |
| Repayment on real estate | 20 or 25 years on the SBA portion |
| SBA fees | About 3% of the SBA portion, usually financed into the loan |
| Typical time to close | 60 to 90 days, because the CDC and SBA both review the loan |
Small manufacturers and certain energy projects can borrow up to $5.5 million on the SBA portion.
Your down payment
The 10% minimum applies to a standard project. SBA rules raise it in two cases.
| Your situation | Your down payment |
|---|---|
| Standard project | 10% |
| Business operating two years or less | 15% |
| Special-purpose property, such as a hotel, car wash or nursing home | 15% |
| Both of the above | 20% |
Special-purpose property is a building designed for one kind of use. For the full SBA list, see our guide to SBA 504 loan requirements.
Example. On a $2,000,000 building for an established business, the bank lends $1,000,000, the CDC lends $800,000 and you put in $200,000. These figures are an illustration, not a quote.
Eligibility
To qualify, your business must:
- Operate for profit in the United States
- Meet SBA small business size standards, either for your industry or through the alternative test: tangible net worth of $20 million or less and average net income after federal taxes of $6.5 million or less over the prior two years
- Be 100% owned by U.S. citizens or U.S. nationals who live in the U.S., under current SBA policy
- Occupy at least 51% of an existing building, or at least 60% of a newly built one
- Show enough cash flow to cover all loan payments, with a debt service coverage ratio (DSCR) of at least 1.15
Personal guarantees. Anyone who owns 20% or more signs a personal guarantee.
Jobs or a public policy goal. Each project must create or retain jobs, generally one for every $95,000 of SBA financing, or meet a community development goal instead.
Holding the building in one LLC and running the business in another is allowed with conditions. See can an LLC get an SBA loan.
What a 504 can pay for
Eligible:
- Buying land or an existing building
- Building a new facility
- Renovating, expanding or converting an owner-occupied building
- Long-life machinery and equipment
- Refinancing certain existing debt on fixed assets, under strict conditions
Not eligible:
- Working capital and inventory
- Investment or rental real estate
- Franchise fees and startup costs
- Vehicles
What documents you’ll need
- Personal financial statement for each owner of 20% or more
- Three years of business financial statements and tax returns
- Personal tax returns for each owner of 20% or more
- An interim balance sheet and profit and loss statement
- A business debt schedule
- The purchase contract, or plans and a cost breakdown for construction
- Financial projections, if the project will change your business significantly
SBA 504 or SBA 7(a)?
Both programs finance owner-occupied commercial property.
504 suits a straightforward purchase or build where a fixed rate matters. It’s limited to real estate and long-life equipment.
SBA 7(a) is one loan, usually at a variable rate. It’s more flexible: it can combine real estate with working capital or equipment, and it generally closes faster.
Not sure which fits? Your loan expert will compare both for your project. For a side-by-side with bank financing, read conventional loan vs SBA.
How it works
- Apply online. A short, 1-minute form tells us about your property and your business.
- Talk to your loan expert. A Standout loan expert is assigned to your file and confirms a 504 fits your project.
- Choose your loan. Your loan expert brings you the best available options from our lending partners and coordinates the bank and CDC through closing.
All terms and requirements on this page are typical figures. They are subject to credit approval and can change without notice.
Common questions
How is a 504 loan different from a 7(a)?
A 504 splits into two loans: a bank first mortgage and a second loan from a Certified Development Company (CDC), with a fixed rate on the SBA portion. A 7(a) is one loan, usually at a variable rate, and can also cover working capital.
How much do I need to put down?
Typically 10% of the total project cost. It rises to 15% if your business has operated for two years or less or the property is special-purpose, such as a hotel, and to 20% if both apply.
Can I use a 504 to buy investment property?
No. Your business must occupy at least 51% of an existing building, or 60% of new construction. For investment property, look at conventional commercial loans or DSCR loans.
Can a 504 loan pay for construction or renovation?
Yes. Buying land, building a new facility and renovating or expanding an owner-occupied building are all eligible uses.
Can a 504 cover working capital?
No. A 504 is limited to fixed assets: real estate and long-life equipment. An SBA 7(a) loan can cover working capital.
How long does a 504 loan take to close?
Typically 60 to 90 days. The bank, the Certified Development Company and the SBA all review the loan, so it takes longer than a conventional or 7(a) loan.
What is a Certified Development Company?
A nonprofit lender certified by the SBA to make 504 loans. It funds the second loan in a 504 deal, which the SBA guarantees.
Other options to compare
All loan programs- Loan program SBA 7(a) loans for commercial real estate Buy, build or improve the building your business operates from, with a lower down payment. Repayment up to 25 years
- Loan program Conventional commercial loans Bank and credit-union financing. For strong credit and full documentation, usually the lowest-cost path. Banks and credit unions
- Loan program SBA business loans Government-backed capital for working capital, equipment, inventory, acquisition and expansion. No real estate required
Ready to take the next step?
Apply in about a minute. Your loan expert will guide you from there.