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SBA 504 Loans: The Full Information

Should you’re in search of decrease actual property prices and longer mortgage phrases, an SBA 504 mortgage could also be an excellent choice. Nevertheless, these loans are a bit totally different from different SBA loans

For one factor, the mortgage is a mix of two loans — a conventional lender covers a portion of the mortgage, and a Licensed Growth Firm (CDC) covers the remainder. Earlier than making use of, it’s a good suggestion to find out how 504 loans work and the professionals and cons of taking one out. 

What’s a SBA 504 Mortgage?

The SBA’s 504 mortgage program gives long-term financing for actual property, tools, and different mounted belongings. These loans are partially funded by Licensed Growth Facilities (CDC), licensed by the SBA.

The utmost mortgage quantity is $5 million, although there are exceptions for particular power initiatives. On this case, a borrower can obtain $5.5 million per challenge for as much as three initiatives not exceeding $16.5 million.

Quantity $25,000 – $5 million
($5.5 million for eligible power initiatives and small producers)
Time period 10, 20, or 25 years
Rates of interest Primarily based on 10-year U.S. Treasury charges
Collateral The third-party lender will place a 1st lien on the challenge property. The SBA will place a second lien on the property. Further collateral could also be required to cowl the total quantity of the mortgage.
Charges The CDC could cost a processing price, closing price, and servicing price. The SBA additionally expenses an upfront and annual warranty price. There may be an underwriting price.

What are 504 loans used for? 

SBA 504 loans are designed to advertise enterprise progress and job creation by the buy of actual property or different long-term belongings. They can be utilized to buy the next long-term belongings:

  • Present actual property or land
  • New services
  • Lengthy-term tools and equipment
  • Updates to new or present actual property
  • The advance of land, streets, utilities, and parking tons

Nevertheless, a 504 mortgage can’t be used for speculative actual property investments, working capital, or stock. 

How SBA 504 loans work.

To finish an SBA 504 mortgage, there shall be three events concerned:

  • A Licensed Growth Firm (CDC) – SBA-certified corporations which might be licensed to problem 504 loans
  • A 3rd-party lender A financial institution or credit score union
  • The borrower The small enterprise proprietor

The small enterprise proprietor applies with a Licensed Growth Firm. The CDC coordinates a two-part mortgage between the borrower, the SBA, and a third-party lender. Fifty % of the mortgage will operate as a standard industrial mortgage by a lender corresponding to a financial institution or credit score union. A second mortgage backed by the SBA will cowl as much as 40% of the mortgage. The remaining 10% is contributed by the proprietor as a down cost.

Newer companies, outlined as a enterprise that has been in operation for 2 years or much less, should contribute a 15% down cost. If the mortgage shall be used to buy or construct a restricted or special-purpose property, additionally, you will want the next down cost. The SBA defines particular function properties as these with a singular design that restricts its use for different functions corresponding to a bowling alley.

Accountable Social gathering Commonplace New enterprise OR restricted or particular function property Each new AND restricted or special-purpose property
Third-party lender 50% 50% 50%
CDC/SBA 40% 35% 30%
Borrower 10% 15% 20%

The best way to apply for an SBA 504 mortgage?

Making use of for a 504 mortgage is a bit totally different for the reason that loans are solely obtainable by CDCs. You’ll begin by discovering a CDC location in your space—greater than 200 facilities are situated throughout the U.S.

When you’ve discovered a CDC, you should get prequalified to see what what you are promoting is eligible for. Getting prequalified gained’t damage your credit score rating, and the method is far much less rigorous than the total software course of.

When you’re able to submit a proper mortgage software, you need to use the 504 Authorization File Library to see what documentation you want. It usually takes the SBA a few week to approve or deny your software, nevertheless it may take a number of months to shut on the mortgage and obtain the funds. 

Eligibility necessities for a 504 mortgage.

You will need to meet the next necessities to qualify for a 504 mortgage:

  • Function as a for-profit firm 
  • Do enterprise in the US or U.S. territories
  • Have a internet price beneath $15 million
  • Have a median internet earnings beneath $5 million after taxes for the 2 years previous to your software
  • Have hazard insurance coverage on the property being financed

As well as, debtors have to satisfy common eligibility requirements set by the SBA.

Execs and cons to think about

When evaluating whether or not a 504 mortgage is the suitable alternative for you, take into account the next professionals and cons.


  • Low rates of interest Rates of interest on the CDC portion of the mortgage are restricted by the SBA, in order that they are typically decrease than what most lenders provide. And the rate of interest is mounted, so it gained’t change all through the lifetime of the mortgage. 
  • Prolonged reimbursement phrases SBA 504 loans additionally include beneficiant reimbursement phrases. If you buy tools, you’ll have a 10-year reimbursement time period. However actual property comes with 10-, 20-, and 25-year reimbursement phrases.
  • Low down cost necessities Once you take out a 504 mortgage, you’re required to pay a ten% down cost which is decrease than what most industrial lenders require.  


  • Comes with a private assure – The SBA requires a private assure on all of its loans, together with 504 loans. A private assure means the lender has a proper to pursue the proprietor for mortgage reimbursement if the enterprise defaults on the mortgage. 
  • Rigorous software course of – The SBA is thought for its intensive documentation necessities—it may take a few months to shut on the mortgage and obtain the funds.

Can a SBA 504 mortgage be used for a change of possession?

A 504 mortgage could also be used to finance the acquisition of eligible, long-term, mounted belongings as a part of a enterprise acquisition. The acquisition of any ineligible belongings have to be financed by different means corresponding to an SBA 7(a) mortgage.

SBA 504 mortgage options

Should you’re not sure whether or not a 504 mortgage is the best choice for what you are promoting, there are different choices you may take into account. Listed below are a number of SBA 504 mortgage options:

  • SBA 7(a) loans – An SBA 7(a) mortgage is one other mortgage that’s backed by the SBA. These loans are usually used for working capital, tools, and refinancing enterprise debt. Loans can be found for as much as $5 million with reimbursement phrases as much as 25 years.  
  • SBA Specific loansSBA Specific loans can be found for as much as $500,000, and the charges could also be barely increased than different kinds of SBA loans. However the turnaround time is lower than 36 hours, so it’s an excellent choice for anybody in search of quicker funding.

The Backside Line

If you wish to buy industrial property or different mounted belongings for what you are promoting, it’s best to take into account an SBA 504 mortgage. These loans include a ten% down cost, low charges, and longer reimbursement phrases. 

However if you wish to put among the funds towards working capital wants or refinancing debt, you may look right into a 7(a) mortgage as an alternative. Should you’re able to get prequalified for an SBA mortgage, you need to use Lendio to rapidly evaluate mortgage gives from a number of lenders.

Rapidly Examine Mortgage Provides from A number of Lenders

Making use of is free and gained’t influence your credit score.



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