What Is an SBA 504 Loan?

Do you own a small business, and there’s a need for high-value equipment? Or maybe you want to purchase commercial real estate. If you’re in need of finance and are unable to figure out the best possible solution, an SBA 504 loan may just be the oil to your ache.

Presenting you with this guide is ALT Financial. We will look everything you need to know about SBA 504 loan.

SBA 504 Loan

For small business owners looking to grow, expand, or invest in long-term assets, financing can be one of the biggest hurdles. That’s where the SBA 504 Loan Program comes in — a powerful tool backed by the U.S. Small Business Administration (SBA) that offers affordable, long-term, fixed-rate financing.

The SBA 504 Loan Program is specifically designed to help small businesses finance major fixed assets like real estate, buildings, and heavy equipment. Unlike traditional loans, 504 loans are structured through a unique partnership between:

• The borrower (you):typically contributes 10% of the project cost.
• A Certified Development Company (CDC):a nonprofit organization that provides 40%.
• A third-party lender (bank or credit union):covers the remaining 50%.

This setup helps reduce the financial burden on small business owners while giving them access to larger capital at more favorable terms.

SBA 504 Loans vs. CRE Mortgages

If you’re exploring SBA 504 loans, you might also come across Commercial Real Estate or CRE mortgage. CRE mortgages are traditional bank loans used to purchase or refinance real estate used for business purposes. While both options can finance property purchases, there are key differences:

• CRE mortgages often require higher down payments (typically 20%–30%) and may have variable interest rates.
• SBA 504 loans offer lower down payments (as little as 10%) and fixed interest rates for up to 25 years.

For many small businesses, the SBA 504 loan offers a more accessible and stable route to property ownership compared to a conventional CRE mortgage.

Key Features and Benefits

• Loan Amounts: Up to $5 million (or $5.5 million for manufacturers or energy-efficient projects)
• Repayment Terms: Fixed terms of 10, 20, or 25 years
• Interest Rates: Competitive fixed rates, typically 5%–7%
• Collateral: The asset being financed is the primary collateral

This makes the 504 program particularly attractive for businesses investing in long-term growth while seeking predictable payments and low rates.

Who Qualifies?

To be eligible, your business must:

• Be for-profit and located in the U.S.
• Have a net worth under $15 million
• Have an average net income of $5 million or less after taxes for the previous two years
• Use the funds for eligible fixed assets
• Occupy at least 51% of the property (if purchasing an existing building), or 60% if building new

How to Apply

• Find a CDC:Locate one through the SBA’s CDC directory.
• Consult with a lender:A participating bank or credit union will usually handle 50% of the project financing.
• Submit required documentation:Business plans, tax returns, project cost breakdowns, and financial statements.
• Await SBA review and approval:The process typically takes 30 to 90 days.

Recent Program Updates

As of late 2024, the SBA announced several changes to the 504 loan program to make it even more accessible. These updates include streamlined eligibility criteria and improved refinancing options, making it easier for small businesses to lower their existing loan payments and access capital for expansion.

Is an SBA 504 Loan Right for You?

If your business is planning to buy property, upgrade equipment, or expand facilities — and you want fixed rates, longer terms, and lower down payments — the SBA 504 Loan could be your best financing option.

To get started, consult a Certified Development Company in your area or visit the official SBA 504 Loan page for more information.

Need help navigating the SBA 504 or CRE mortgage options, or want to know about reliable SBA loan lenders? Let us know — we’re happy to connect you with experts who can guide you through every step.

Also Read: What Is an SBA Loan? Everything You Need to Know