Own the assets that anchor your business.

If you are buying the building you operate from, adding heavy equipment, or breaking ground on an expansion, the SBA 504 program is one of the strongest structures available for long-term capital investment. We walk clients through it the same way we walk through any deal: what it funds, how the structure works, what it takes to qualify, and how to navigate the process without losing months.

What is an SBA 504 loan?

An SBA 504 loan is long-term, fixed-rate financing for major fixed assets, such as owner-occupied commercial real estate and long-life equipment, delivered through a Certified Development Company in partnership with a private-sector lender. The SBA does not lend the money itself; it backs a portion of the financing so small businesses can access terms that conventional lending alone rarely offers. A Certified Development Company (CDC) is an SBA-certified nonprofit partner whose mission is economic development in its community, and it is the entity that delivers the SBA-backed piece of every 504 project.

In practice, you are closing two coordinated loans plus your own contribution. Per the SBA’s 504 program rules, a third-party lender (typically a bank) finances about 50% of the project and holds the first lien, the CDC finances up to 40% through an SBA-backed debenture in second position, and you contribute at least 10%. Two lenders, one project, one closing calendar to manage.

What can a 504 loan finance?

The program exists for fixed assets that expand a business, and the SBA defines the eligible uses clearly.

What a 504 loan cannot fund matters just as much: working capital, inventory, and speculation or rental real estate investment are all prohibited uses per the SBA. If the real need is operating cash, look at SBA 7(a) financing or our working capital structures instead.

Who is SBA 504 financing for?

The 504 program fits operators making a long-term bet on their own footprint. We see three profiles most often:

• Owners buying their building instead of renting. Rent becomes equity, occupancy costs become predictable, and the property becomes a balance-sheet asset.
• Manufacturers adding heavy equipment. Long-life machinery matched to long-term, fixed-rate debt, so the asset and the financing amortize together.
• Expansion and construction projects. A second location, a larger facility, or ground-up construction where a 10% contribution preserves cash for the growth itself.

How is an SBA 504 loan structured?

The baseline structure is 50% third-party lender, up to 40% CDC, and at least 10% from you, per the SBA. Your contribution rises to 15% if the business has operated for fewer than two years or the property is special-purpose, and to 20% when both apply, per CDC industry guidance. The SBA-backed CDC portion runs up to $5.5 million at the program’s published top end, with the highest amounts reserved for small manufacturers and eligible energy projects.

Maturities run 10, 20, and 25 years, and the CDC portion carries a fixed rate pegged to an increment above 10-year U.S. Treasury yields, per the SBA. That fixed, long-dated pricing is the program’s signature advantage. One honest note: the equity injection plus closing costs is real money, and planning that liquidity alongside the project budget is part of structuring the deal well.

Two dated developments are worth knowing. For loans approved through September 30, 2026, the SBA has waived upfront and annual service fees on 504 manufacturing loans. And effective July 4, 2026, the cumulative 7(a) plus 504 borrower limit doubles to $10 million, which meaningfully raises the ceiling for capital-intensive operators.

What does it take to qualify?

Qualification runs on four tracks. First, occupancy: your business must occupy at least 51% of an existing building, or at least 60% of new construction, per CDC guidance. Second, public benefit: as updated effective October 1, 2025, the project must create or retain one job per $95,000 of SBA debenture ($150,000 for small manufacturers and eligible energy projects), or qualify instead by meeting SBA community-development or public-policy goals, per the Federal Register notice. Third, size: a tangible net worth of $20 million or less and average after-tax net income of $6.5 million or less over the prior two years, per the SBA. Fourth, the fundamentals every lender weighs: creditworthiness and the demonstrated ability to repay from projected cash flow.

How does the SBA 504 process work?

There are two ways to start. You can go directly to a CDC in your area, where the qualification process begins and where you will typically be matched with a third-party lender. Or you can start with an SBA-experienced lender, who guides the application and brings in the CDC. Either way, expect a coordinated, documentation-heavy process: two lenders, government review, appraisals, and a closing calendar that rewards preparation. This is a program where specialist guidance genuinely matters, and that is where we come in. We help operators assemble the package, position the project against the program’s requirements, and keep both sides of the structure moving. And if the project’s timing will not wait, flexible capital through Capital Source’s Stretch Finance offering can be structured around the project while the 504 package is built, subject to underwriting.

Related financing structures

A 504 loan is one instrument among several for funding growth. Explore acquisition financing for buying a business or its assets, SBA 7(a) financing for working capital and broader uses, and asset-based lending when the balance sheet should drive the structure.

Frequently asked questions