SBA 504 Loans: How They Work for Property and Equipment

What a 504 loan is for

A 504 loan finances long-term fixed assets such as owner-occupied commercial property, construction and improvements, and heavy machinery. It cannot be used for working capital or inventory.

The program exists to support growth and job creation through investments in physical assets. Typical uses include buying or building a facility you will occupy, major renovations, and purchasing equipment with a long useful life.

It generally does not cover working capital, inventory, debt refinancing without a qualifying project, or speculative real estate you plan to rent out to others. If you need money for those, a different product is the right tool.

How the loan is structured

A 504 project is typically funded by a bank loan, a Certified Development Company loan backed by the SBA, and a borrower down payment.

The commonly described split is roughly 50 percent from a bank, 40 percent from the CDC and 10 percent from the borrower. The down payment can be higher for new businesses or special-purpose property. Confirm the current structure with a CDC or on SBA.gov.

Here is an illustrative example. On a $1,000,000 building, the bank might provide about $500,000, the CDC about $400,000 and you about $100,000. The CDC portion usually carries a fixed rate for the long term, which makes the payment predictable. The bank portion typically has its own terms.

Who qualifies

The business must meet the SBA size standard, operate for profit in the U.S., plan to occupy the majority of the property if real estate, and show it can repay.

The program also looks at a tangible net worth and net income test and at public policy goals such as job creation. Lenders want to see financial statements, tax returns, a business plan for the project and collateral, usually the asset itself.

Credit expectations are stricter than for faster products. For an overview of how lenders view credit on SBA loans, read SBA loan credit score requirements. Because rules change, verify current eligibility with the SBA or a CDC.

504 vs. 7(a)

Use 504 for large fixed-asset purchases with a low down payment and fixed long-term rate. Use 7(a) when you need flexibility, including working capital or a business purchase.

Our guide to the SBA 7(a) loan covers the other side of that comparison.

Timeline and paperwork

Expect weeks to a few months from application to closing, because two lenders and the SBA must approve. Prepare documents early.

Typical requirements include business and personal tax returns, financial statements, a debt schedule, a project budget, quotes or contracts, and for real estate an appraisal and environmental review. Construction adds more steps.

If your deadline is short, an SBA path may not fit. Read how long an SBA loan takes and plan backward from your closing date.

When something faster fits better

If you need funds in days for equipment, working capital or a gap while waiting on an SBA closing, a faster product may be the better tool.

ROI Funder places SBA loans as the slower, lowest-cost option, and also equipment financing in 2-7 days and term loans in 1-5 days. We do not place commercial real estate mortgages, so for a property purchase outside the SBA path you would work with a commercial lender directly.

We consider 500+ FICO, 6+ months in business and $20,000+ monthly revenue. Applying takes a few minutes, uses a soft credit pull and carries no obligation. Compare payback period and total cost before choosing speed over price.