# SBA 504 loan

> SBA 504 is a fixed-asset financing program: up to $5M (or $5.5M for green/manufacturing projects) for commercial real estate or major equipment. 10% borrower down, 50% bank loan, 40% SBA-guaranteed CDC loan at sub-7% fixed for 20-25 years.

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](https://fundnode.co/llms/glossary/sba-loan-7a) — 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)](https://fundnode.co/llms/glossary/mca-vs-loan) — 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](https://fundnode.co/llms/glossary/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.

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Source: https://fundnode.co/glossary/sba-504-loan (HTML version)
Document: SBA 504 loan — Fundnode MCA Glossary
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