SBA 504 Loans: How To Qualify And Apply

The SBA 504 mortgage might help small companies trying to finance main belongings like tools and actual property to develop their enterprise and create jobs. SBA 504 loans provide long-term fixed-rate financing of as much as $5.5 million — a lot larger than many typical enterprise loans.

To this point in fiscal yr 2025, the SBA has accredited over 4,200 companies for 504 loans, totaling almost $4,82 billion in funding, with a median mortgage measurement of $1.14 million, in accordance with the 7(a) & 504 Abstract Report. In case you’re trying to safe funding for enlargement and development, understanding the SBA 504 mortgage utility course of is vital.

Earlier than you apply, get to know the eligibility necessities and steps to qualify for and full an SBA 504 utility.

What’s an SBA 504 mortgage?

An SBA 504 mortgage is a long-term enterprise mortgage designed for purchasing giant belongings like business tools and actual property. This system is targeted on belongings that assist the enterprise’s development or present extra jobs to staff.

Like all SBA loans, it’s partially assured by the U.S. Small Enterprise Administration, although at a decrease charge than different SBA choices.

What’s a Licensed Improvement Firm?

A Licensed Improvement Firm (CDC) is an SBA-certified nonprofit accomplice that helps creating surrounding communities. These group companions are your go-to supply for studying about 504 mortgage {qualifications}, program rules and navigating the appliance course of.

How do SBA 504 loans work?

SBA 504 loans can present as much as $5 million in funding to purchase mounted belongings like actual property. Funding requests for buying, enhancing, modernizing and development of qualifying initiatives could also be eligible for as much as $5.5 million for a number of loans.

The 504 mortgage is assured by the SBA for as much as 40 % of the mortgage quantity borrowed. This assure is way decrease than the 7(a) mortgage that ensures as much as 85 % of the mortgage.

An extra portion of the 504 mortgage can be assured by a 3rd occasion, comparable to a financial institution or credit score union. The third occasion could assure as a lot as 50 % of the mortgage. To spherical out the collateral necessities, your enterprise shall be required to place down not less than 10 % of the mortgage quantity.

SBA 504 mortgage charges

The 504 mortgage rate of interest is ready above the market charge for 10-year U.S. Treasury bonds. It often totals about 3 % of the borrowed quantity, baked into the mortgage repayments.

SBA 504 mortgage charges

The 504 mortgage program prices just a few charges to keep up funding, however the charges will be rolled into the repayments.

SBA 504 mortgage reimbursement phrases

SBA 504 loans provide 0-, 20- and 25-year maturity phrases. You will have completely different reimbursement phrases on the parts assured by the financial institution versus the Licensed Improvement Firm.

SBA 504 down fee

The SBA 504 mortgage program requires a down fee of not less than 10 %. In case you’re a startup enterprise or purchase properties for a particular goal, it’s possible you’ll be required to place down extra money for the mortgage.

What can an SBA 504 mortgage be used for?

You need to use this well-liked 504 mortgage for belongings that assist enterprise development initiatives. These embody:

Ineligible bills

SBA 504 loans are ineligible for the next bills:

• Working capital
• Stock purchases
• Investing or speculating in rental actual property
• Debt consolidation or refinancing that doesn’t meet the certified debt definition in paragraphs (e) and (g) beneath 13 CFR 120.882
• Financing for AI-related consulting providers, mental property or working capital

What are the SBA 504 necessities?

To get an SBA 504 mortgage, you will need to meet the SBA’s minimal necessities and necessities from the CDC and lender. Lender necessities will fluctuate however could also be aggressive as a result of 504 mortgage borrowing prices and reimbursement phrases are fascinating.

SBA 504 mortgage necessities embody:

• Assembly SBA enterprise measurement tips
• Within reason in a position to repay the mortgage
• For-profit firm
• Primarily based within the U.S. or U.S. possessions
• Web price beneath $20 million
• Common web revenue beneath $6.5 million, after federal taxes for the previous two years
• A marketing strategy
• Not be a nonprofit, passive or speculative enterprise

How do you apply for an SBA 504 mortgage?

The 504 mortgage program is obtainable via CDCs, that are nonprofit organizations licensed by the SBA to supply this mortgage. You possibly can apply in just a few steps:

1. Discover a CDC via the SBA’s native help software.
2. Contact the CDC straight to start out an utility.
3. Fill out the appliance. Key managers and staff and anybody with not less than 20 % possession within the enterprise might want to apply.
4. Present monetary and enterprise paperwork.
5. Anticipate 30 to 90 days for SBA approval.

The anticipate 504 mortgage approval will be lengthy, however it’s often well worth the wait. The financial institution should underwrite and approve the mortgage. Then, the CDC should internally approve and underwrite its portion of the mortgage. The CDC will then submit the appliance to the SBA to evaluate, approve and authorize the 504 mortgage.

As soon as the mortgage is secured, the financial institution and CDC will disburse its funds to implement and full the undertaking earlier than the CDC can shut on the mortgage. The SBA will then promote a debenture to safe funds to disburse to the financial institution for last closing.

What are options to SBA 504 loans?

You possibly can finance actual property and tools via enterprise loans apart from the 504 mortgage program. Options that will go well with you:

• SBA 7(a) loans. One other well-liked SBA mortgage, the 7(a) mortgage can be utilized for common functions, together with shopping for belongings. It’s supplied via SBA-approved lenders like banks slightly than CDCs. The SBA doesn’t require collateral for loans beneath $25,000, although lenders may.
• SBA Categorical loans. Categorical loans work effectively for small bills beneath $500,000 since that is the utmost mortgage measurement. Compensation phrases vary from 5 to 25 years. It’s additionally recognized for sooner approvals than the same old SBA mortgage.
• SBA microloans. Microloans provide funding as much as $50,000, often via a community-based lender that chooses to take part within the microloan program. These lenders often intention to serve underserved communities, offering training and different assist to assist small companies succeed.
• Gear loans. An tools mortgage is a sort of enterprise time period mortgage that’s secured by the business tools you’re shopping for. Just like the 504 mortgage, it might have a decrease down fee as a result of collateral. Gear loans typically have lenient eligibility necessities, comparable to requiring annual income as little as $100,000.
• Industrial actual property loans. A business actual property mortgage is sort of a mortgage for your enterprise, besides that the lender considers your enterprise revenue or income that the property will herald when approving the mortgage.

Backside line

The SBA 504 mortgage works effectively if you wish to develop your enterprise by shopping for belongings. You get the advantage of for much longer reimbursement phrases than typical enterprise loans. You additionally work one-on-one with a Licensed Improvement Firm (CDC), a nonprofit specializing in providing all these loans.

You’re restricted in what you need to use this mortgage for, and it’s a must to meet the SBA’s and lender’s necessities to qualify. On prime of that, SBA loans are recognized for his or her sluggish approval course of, whereas different lenders provide quick funding in as little as just a few days.

You could wish to try different mortgage choices for those who don’t qualify for the 504 mortgage.

Incessantly requested questions