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SBA 504 Loan 101: Benefits, Guidelines & Eligibility - 504 Capital
SBA 504 Loan 101: Benefits, Guidelines, and Eligibility
SBA 504 Loan 101: Benefits, Guidelines & Eligibility

SBA 504 Loan 101: Benefits, Guidelines, and Eligibility

SBA 504 Loan 101: Benefits, Guidelines, and Eligibility

You’re an established business owner with a plan to streamline growth.  With that growth comes the purchasing of new assets— whether it be commercial real estate, heavy machinery, equipment, or construction. As a business opportunist investing in your company’s future, the Small Business Administration (SBA) 504 Loan becomes the quintessential option.

SBA 504 loans grant low-interest rates and attractive benefits that can heighten profitability by scaling your business, increasing sales, and improving operations. Specifically, SBA 504 loans offer businesses, franchises, and manufacturers fixed asset rate financing, debt service coverage, owner-occupied real estate financing, and a 25-year fixed interest rate. 

In this blog, we will explore the eligibility steps and benefits of the SBA loan process.

What is an SBA 504 Loan?

An SBA 504 loan (or CDC/504 loan) is a government-backed financing program offered by the SBA to promote small business growth and job creation. The small business loan is designed to help small business owners purchase or improve commercial real estate, heavy machinery, construction, or finance equipment at below-market rates.

Certified Development Companies (CDCs) approved by the SBA aid in administering and funding the loans, which other external lenders partly finance. Hundreds of CDCs nationwide exist to foster economic growth in their respective communities.  

How Does an SBA 504 Loan Work?

The SBA 504 program provides borrowers with fixed asset financing and distributes the funding amongst three parties:

  • The business owner contributes a minimum of 10%.
  • A reputable lender or bank puts down up to 50%.
  • The Certified Development Company (CDC) provides the remaining 40%.

This is dispersed among the three parties after the business passes SBA-specific checkpoints and proof of finances. The financing essentially flows through the borrower with a 10% down payment first, next with the trusted third-party lender with 50% or less funding, then 504 Capital steps in to initiate the closing process, with the remaining 40% financing offered by our CDC partners.

SBA 504 Restrictions and Requirements

As with any government loan process, you must pass multiple checkpoints to reach eligibility. After committing to the SBA 504 loan program, you will need to consider if your business matches the preconditions. The experience can be demanding, so it’s vital to understand the policies to avoid delay and pushback. 

To gain government approval for your SBA 504 loan, you must have the following:

  • A concrete net worth of less than $15 million 
  • An average after-tax net income of less than $5 million over the past two years
  • A United States business permit
  • Certified management experience
  • A solid business plan
  • The intention to use the loan proceeds for fixed asset acquisition or improvement (land and buildings, machinery and equipment, or construction)
  • The means to repay the loan

Other factors are involved in increasing your chances, like being a for-profit enterprise, having a good credit score, and having less than 500 active employees. Working with an experienced lender will help you navigate the process and attain your small business loan as efficiently as possible.

How to Secure an SBA 504 With 504 Capital:

Now that you know the basics of the SBA loan process, let’s dive into 504 Capital’s step-by-step guide on how to apply for your SBA 504 loan.

Seek a Certified Development Company

The SBA 504 lending program is unique because it requires you to rely on a CDC and private lender versus a sole SBA lender. Your CDC advisor bridges the gap between you and your economic growth by guiding your enterprise through the process. The SBA compiled a list of CDCs to help you get started.


After you’ve met your CDC, you’ll need to review your finances to check if you’re eligible. Prequalification is an intelligent way to get a head-start on the 504 approval process—and if you’re a real estate investor—it grants you the advantage to compete against other buyers before sending your formal application.  

You will also need to present several essential documents to demonstrate your business’s financial position, including personal and business financial statements and tax returns (over the past three years).  And although the SBA 504 loan program doesn’t have a minimum credit score requirement, you should have a healthy credit score to highlight your ability to repay the loan.

Send Your Application

Next, you will need to prepare all required documents for submission. Begin by filling out the SBA 504 loan application with the oversight of your designated CDC. You must illustrate your business’s ownership structure, history, and financial information here. The SBA website includes an archive of resources to assist your application, including a 504 Authorization Library, Development Company 504 Debenture, and more.

Be prepared to provide SBA with the following additional information:

  • A solid business plan projection
  • Personal and business financial statements
  • Personal and business tax returns (past three years)
  • Active bank accounts
  • Construction contractor estimates
  • Equipment cost documentation

Close on Your Small Business Loan

After the application has been submitted, it will be reviewed by the SBA and the lending institution. It generally takes one week for the SBA to decide and two weeks to gain the funds. If approved, the loan will be processed and dispersed according to the terms of the loan agreement.

Abide by Post-closure Conditions

After closing, you must communicate with the SBA on any business-related updates. Some factors to be discussed include ownership changes, evidence of taxes paid (real estate and corporate), financial statements, proof of hazard insurance, life insurance, and any additional financing.

Benefits of an SBA 504 Loan

If you’re a successful business owner or manufacturer focused on expanding your enterprise and fixed assets, this small business loan may be the perfect match for you.   

SBA 504 Program Pros:

  • Low down payment
  • Up to 90% financing coverage
  • Below market fixed interest rate
  • Long, flexible amortization periods
  • Does not take large business assets as collateral
  • Helps working lines of capital credit
  • Minimizes credit risk
  • Fixed asset financing

504 Capital: Your SBA 504 Provider

Applying for an SBA 504 loan is a commitment— as is your devotion to your business. Luckily, our Certified Development team of professionals at 504 Capital is at your aid in the VA, MD, and NC areas to support your business evolution.

Take the reigns on your business’s future. Call 757-623-2691 or contact us online to discover new opportunities. 

Apply Now