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SBA Loans: the 504 Loan Program

T.J. Casady,

January 30, 2015

Building Your Business


The Small Business Administration's (SBA) 504 Loan program is for small businesses needing to acquire major fixed assets, to expand, to modernize, or to construct a new facility. This program provides long-term, fixed-rate (up to 20 years) financing to encourage community growth and business expansion. SBA 504 loans can only be used for fixed assets such as:

  • Real estate, both existing buildings and new construction
  • Improvements and upgrades. This can include street grading, parking lots, landscape, etc.
  • Remodel or conversion of existing facilities.
  • Purchase of machinery and equipment needed long-term.

The three parts to a 504 Loan

  • Part one: A loan secured with a first mortgage from a private-sector lender covering up to 50% of the project cost.
  • Part two: A second mortgage secured with a junior lien from an SBA certified development company covering up to 40% of the cost. (This is 100% backed by the SBA)
  • Part three: A contribution from the small business owner of at least 10% equity for the cost of the project.

With SBA 504 loans borrowers can finance up to 90% of appraised property value. They can also include the eligible refinancing costs. To be eligible for a 504 loan, a business must operate for profit, and fit the size guidelines set by the SBA for the 504 program. This means tangible net worth can’t exceed $15 million, net income can’t exceed $5 million after taxes. In addition, 504 loans can’t be made to businesses that speculate or invest in rental real estate.

For even more information about 504 Loans, check out 504 Loan Resources from and NEDCO. If you have any questions about how an SBA Loan can work for your business, I'm here to help.

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I see that 504 loans cannot be used by "businesses" to buy investment properties but can an individual for instance use a 504 loan to buy a townhome, primary use as a rental? or do you have to go through conventional residential lending avenues for that? Reason I ask is b/c from what I see you pretty much need 20% going that route. Any advice would be great and thanks!

This blog article is for informational purposes only, and is not an advertisement for a product or service. The accuracy and completeness is not guaranteed and does not constitute legal or tax advice. Please consult with your own tax, legal, and financial advisors.