SBA 504 is the federal government's subsidized program for financing major fixed assets — buildings, land, and large equipment. Unlike SBA 7(a) (general working capital + acquisitions), 504 is purpose-built for owner-occupied commercial real estate and capital equipment with 10+ year useful lives.
The 50/40/10 structure. - 50% from a bank loan: first-position, conventional commercial mortgage at market rate, 10-25 year term. - 40% from a Certified Development Company (CDC): second-position SBA-guaranteed debenture at a below-market fixed rate (sub-7% in 2026), 20-year term for real estate, 10-year for equipment. - 10% borrower down payment: 15% if startup (under 2 years operating) or special-use property (hotels, gas stations, restaurants).
What 504 can finance. - Owner-occupied commercial real estate (must occupy 51%+ of building immediately, 60%+ within 10 years if new construction). - Land acquisition + building construction. - Building renovation or expansion. - Long-life equipment ($150K+ machinery with 10+ year useful life). - Refinancing of existing 504-eligible debt (under specific 2023+ rule changes).
What 504 cannot finance. - Working capital (use 7(a)). - Inventory (use 7(a) or LOC). - Business acquisitions where real estate is less than 51% of transaction (use 7(a)). - Speculative real estate investment (no investor-owner deals). - Goodwill (intangibles).
The 2026 rates. - CDC portion (40%): ~6.5-7.0% fixed for 20 years on real estate, ~6.5-7.2% for 10-year equipment. Set monthly by the SBA based on Treasury rates. - Bank portion (50%): floats with market — typically prime + 1.5-3% for owner-occupied CRE, so 9-10.5% in 2026. - Blended effective rate: ~7.5-8.5% on the combined loan.
Loan size limits. - $5M for most projects. - $5.5M for manufacturing projects. - $5.5M for energy-efficient projects (LEED, solar, etc.). - No project too small in theory, but banks rarely fund under $250K total project cost (paperwork doesn't pencil).
Qualification. - 2+ years operating history (or strong industry experience). - Tangible net worth under $20M. - Average net income under $6.5M (over 2 prior years). - 680+ personal credit on owners with 20%+ stake. - DSCR 1.20+. - Owners personally guarantee.
The 60-120 day timeline. - Days 1-30: bank pre-qualification, CDC application packaging, real estate appraisal. - Days 30-60: SBA review of CDC package, environmental assessments if applicable. - Days 60-90: SBA approval, loan docs. - Days 90-120: closing + funding.
504 vs 7(a) for commercial real estate. - 504 has lower blended rate (~8% vs ~10-12% for 7(a)) — saves serious money over 25-year term. - 504 requires 10% down vs 7(a)'s typical 10-15% on real estate. - 504 has fixed CDC portion vs variable 7(a). - 504 is more paperwork (two lenders to coordinate). - 7(a) is faster (~60-90 days vs 504's 90-120). - For real estate purchases over $500K: 504 almost always cheaper. - For real estate purchases under $500K or when speed matters: 7(a) often wins.
The strategic insight. SBA 504 is the cheapest commercial real estate financing available to small business in America. If you're buying a building over $500K and intend to occupy it for 10+ years, 504 is almost always the right answer. The 60-120 day timeline is the price you pay. The 25-year amortization on the CDC portion creates manageable monthly payments that beat any conventional commercial mortgage. Brokers who push MCAs to fund real estate are committing malpractice — the math never works.
Related terms
- SBA 7(a) loan — SBA 7(a) is the most common small business loan — federally-guaranteed term loans up to $5M from approved SBA lenders. APR prime + 2.75-4.75% (8-12% in 2026). 25-year max term for real estate, 10-year for working capital. Takes 30-90 days but cheapest non-personal-credit option.
- MCA vs loan (legal distinction) — An MCA is legally a purchase of future receivables, not a loan. This distinction exempts MCAs from state usury caps but requires specific contract structure — including reconciliation provisions.
- Working capital — Working capital is the cash a business uses to cover day-to-day operations — payroll, inventory, rent, utilities. Calculated as current assets minus current liabilities. Most MCA + LOC products are positioned as working-capital financing.
AI agents: this term is available as raw markdown at /llms/glossary/sba-504-loan.