What is the SBA 504 Loan Program?

Businesses looking for funding options for large real estate and land projects might find what they need in the SBA 504 loan program. The SBA created the 504/CDC loan program to enable businesses to complete projects much larger than they could accomplish with other loans.

Certified Development Companies (CDCs) offer the SBA 504 loan program to businesses that meet eligibility requirements. There are more than 260 CDCs across the United States, with local CDC offices in nearly every major city.

Common uses of the SBA 504

Business owners most often use the SBA 504 loan to fund large land and real estate projects. The 504 loan is usually paired with a loan from a traditional lender, with the costs split between the two. This structure is quite the win-win-win situation: it alleviates the burden on both the SBA and the lender, all while empowering businesses looking to complete projects up to $10 million.

Here’s a look at some of the things you can use an SBA 504 loan for:

SBA 504 Loans
  • Purchasing a building. If your business is expanding into a new location, the funds from the SBA 504 can help. Any costs associated with the buying an existing building can be covered by the SBA 504 loan.

  • Acquiring or improving land. You can purchase land with the SBA 504, and make certain improvements specified by the SBA, such as street improvements, parking lots, landscaping, and utilities.

  • New construction. Renovations that modernize existing buildings are included in new construction, as is everything typically associated with new construction. Elevators, fire systems, security, bay doors, and any special requirements for your businesses physical location can be included in the SBA 504 loan terms.

A business owner can’t use the funds from the 504 loan for working capital, which puts some limitations on the loan’s versatility.

SBA 504 Loan Structure and Limits

If you’re thinking about the SBA 504 versus the 7(a) loan, the 504 is typically used for larger projects. Where the 7(a) has no minimum loan amount, the 504 has a minimum of $125,000. The maximum SBA 504 loan amount is between $5-5.5 million -- the SBA sets certain conditions a business can meet in order to qualify for $5.5 million, most of which are at the discretion of the SBA.

Land and real estate projects benefit from the fixed interest rate of the 504 loan. Also, the SBA sets a fixed down payment requirement of 10%, which makes the borrower contribution to a project’s cost clear. The term you can expect for land and real estate loans is up to 20 years.

What is a Certified Development Company?

Non-profit organizations that meet SBA criteria can apply to become Certified Development Companies (CDCs) that promote economic development in the regions they serve. The SBA certifies and regulates CDCs nationwide, and over 260 CDCs operate in the United States.

Each CDC offers the SBA 504 loan to companies that meet the eligibility requirements. Local banks and other traditional lenders work with CDCs to fulfill terms of SBA 504 loans, which greatly increases the size of projects funded by the SBA 504.

Each CDC must have a board of voting directors with at least nine members, but no more than 25. The SBA may approve certain companies with fewer voting directors -- in fact, much of the approval process is at the discretion of the SBA. Because of the responsibility a CDC carries, the SBA regulates them closely: how they operate, when they are audited, and what they do with any funds generated from SBA 504 loans.

The SBA 504 vs. the 7(a)

The differences between the SBA 7(a) and the SBA 504 loans are primarily in how they're used. For example, the 7(a) allows you to use the funds from the loan for working capital, which you can't do with the 504. The 504 is larger, and has terms that are better suited to land and real estate projects that are large enough to be handled by multiple lenders.

The 7(a) favors start-ups and small business owners looking to work with a bank, credit union, or other traditional lending institution. Eligibility requirements for the 7(a) are straightforward, and are designed to encourage lenders to approve small business owners for projects small and large. 

There is no minimum loan amount for the SBA 7(a), and the loan can be used for nearly any legitimate business purpose. Some of the terms of the SBA 7(a) are based on the amount of the loan, but banks generally ask for a 10% down payment from the borrower. Business owners looking to obtain a 7(a) loan must operate within the United States, or a U.S. Territory.

Get Help With Your SBA Loan Process

We understand that the SBA loan process can be confusing -- there’s a lot of information out there, a lot of which is outdated, or doesn’t apply to you or your business. We’re here to help you with your SBA loan process, and we want to get you the expert advice you need to find the right lender. Contact SBA7a.loans today with your questions. We're delighted to help you.

Or, simply click the button below to apply for an SBA loan quote!