The SBA 504 program is the SBA’s tool for helping small businesses buy big, long-lived assets, mainly owner-occupied real estate and heavy equipment. It works differently from a 7(a) loan, and for the right purchase it is hard to beat.
How a 504 loan is structured
A 504 loan is really two loans plus your down payment. A typical deal looks like this:
- About 50% from a bank or credit union, as a first-lien loan.
- About 40% from a Certified Development Company (CDC) and the SBA, as a second-lien loan with a long, fixed rate.
- About 10% from you, the borrower, as a down payment (more for startups or special-purpose property).
That structure is why 504 loans pair a low down payment with a long, predictable fixed rate.
What is a CDC?
A Certified Development Company is a nonprofit certified by the SBA to deliver the SBA-backed portion of a 504 loan. The CDC works with you and the bank to assemble the financing and handles the SBA paperwork on that piece. CDCs are regional, so which ones actually fund projects near you matters: our directory of every CDC, ranked by funded 504 volume and grouped by state, is computed from the SBA’s public loan record.
What 504 can and cannot fund
Use a 504 loan to buy, build, or improve owner-occupied commercial real estate, or to purchase long-term equipment and machinery. You generally occupy most of the building. What 504 does not cover is working capital, inventory, or most debt refinancing; for those, the flexible 7(a) program is the right tool.
Terms
504 financing typically runs 10, 20, or 25 years, matched to the asset, with a fixed rate on the CDC portion. Longer terms keep the monthly payment manageable for a large purchase. Run your numbers in the SBA 504 loan calculator, which models the bank/CDC split at the current debenture rate and prints a year-by-year amortization schedule.
Is 504 right for you?
If you are buying property you will occupy or major equipment and you want a low down payment and a long fixed rate, 504 is often the better fit than 7(a). If you need flexibility or working capital, 7(a) wins. Our 504 vs 7(a) comparison shows how they differ in the data, and the eligibility checker suggests one based on your use of funds. Terms and rules follow the current SBA SOP, so confirm details with a participating lender or CDC.