SBA 504 Loans

SBA 504 loans are specifically for fixed assets commercial real estate and major equipment. They offer lower down payments (10%) and fixed rates on the SBA portion, but can't be used for working capital or inventory. SBA 7(a) loans are more flexible and can be used for almost any business purpose (including real estate and equipment), but typically require 20–30% down for real estate and have variable rates on larger amounts.

For SBA 504 commercial real estate loans, the property must be at least 51% owner-occupied meaning your business must occupy and use a majority of the space. If you're buying a building primarily to lease out to tenants, you'd need a different type of commercial real estate loan. For new construction, 60% occupancy is required.

The SBA 504 program generally requires that one job be created or retained for every $65,000 borrowed (or $100,000 for manufacturers). However, if your business can't meet the job creation requirement, you may still qualify by meeting other public policy goals such as being in a rural area, minority-owned business, or exporting goods.

An SBA 504 loan involves three parties: a bank or credit union provides 50% of the project cost, a Certified Development Company (CDC) provides 40% backed by the SBA, and you contribute 10% as a down payment. You'll have two separate loans one from the private lender and one from the CDC. This structure keeps your out-of-pocket costs low while protecting the lender.

Yes SBA 504 funds can be used for the purchase of land and improvements, construction of new facilities, renovation of existing facilities, and purchase of long-term machinery and equipment. The key requirement is that the assets must be fixed and long-term. Working capital, inventory, and short-term needs are not eligible.