SBA 504 Loan
What Is an SBA 504 Loan?
An SBA 504 loan is a financing program supported by the U.S. Small Business Administration that helps small businesses purchase major fixed assets such as commercial real estate, land, or large equipment.
The program is designed to support long-term investment in business infrastructure.
SBA 504 loans typically involve three parties:
- A private lender (such as a bank)
- A Certified Development Company (CDC)
- The borrower
Each party contributes a portion of the financing.
Why It Matters
SBA 504 loans help small businesses invest in long-term assets that support growth and economic development.
These loans often provide advantages such as:
- Fixed interest rates
- Long repayment terms
- Lower down payment requirements
By making real estate and equipment financing more accessible, the program helps businesses expand operations and create jobs.
How SBA 504 Loans Work
The financing structure typically divides the loan into multiple components.
Example: A business purchasing a commercial building may receive financing where the bank funds a portion of the loan, a CDC funds another portion backed by the SBA, and the borrower provides a smaller down payment.
This structure spreads risk across multiple parties and helps businesses access large-scale financing.
SBA 504 Loan vs SBA 7(a) Loan
SBA 504 Loan → Primarily used for fixed assets like real estate or equipment
SBA 7(a) Loan → More flexible and used for a wide range of business expenses
Both programs support small business financing but serve different purposes.
FAQs About SBA 504 Loans
What types of purchases qualify for 504 loans?
Commercial real estate, land, and major equipment are common uses.
Can SBA 504 loans be used for working capital?
No. They are designed primarily for fixed asset investments.
Who provides SBA 504 loans?
Loans are issued through lenders and Certified Development Companies.
Related Terms
