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Home Blog SBA 504 Loans: The Complete Guide
If you’re looking for lower real estate costs and longer loan terms, an SBA 504 loan may be a good option. However, these loans are a bit different from other SBA loans.
For one thing, the loan is a combination of two loans — a traditional lender covers a portion of the loan, and a Certified Development Company (CDC) covers the rest. Before applying, it’s a good idea to learn how 504 loans work and the pros and cons of taking one out.
4.88-4.97 %
10, 20, 25 years
$5 million
The SBA’s 504 loan program provides long-term financing for real estate, equipment, and other fixed assets. These loans are partially funded by Certified Development Centers (CDC), certified through the SBA.
The maximum loan amount is $5 million, though there are exceptions for specific energy projects. In this case, a borrower can receive $5.5 million per project for up to three projects not exceeding $16.5 million.
SBA 504 loans are designed to promote business growth and job creation through the purchase of real estate or other long-term assets. They can be used to purchase the following long-term assets:
However, a 504 loan cannot be used for speculative real estate investments, working capital, or inventory.
Applying for a 504 loan is a bit different since the loans are only available through CDCs. You’ll start by finding a CDC location in your area — more than 200 centers are located across the U.S.
Once you’ve found a CDC, you need to get prequalified to see what your business is eligible for. Getting prequalified won’t hurt your credit score, and the process is much less rigorous than the full application process.Once you’re ready to submit a formal loan application, you can use the 504 Authorization File Library to see what documentation you need. It typically takes the SBA about a week to approve or deny your application, but it could take several months to close on the loan and receive the funds.
You must meet the following requirements to qualify for a 504 loan:
In addition, borrowers have to meet general eligibility standards set by the SBA.
Applying is free and won’t impact your credit
If you’re unsure whether a 504 loan is the best option for your business, there are other options you can consider. Here are a few SBA 504 loan alternatives:
If you want to purchase commercial property or other fixed assets for your business, you should consider an SBA 504 loan. These loans come with a 10% down payment, low rates, and longer repayment terms.
But if you want to put some of the funds toward working capital needs or refinancing debt, you can look into a 7(a) loan instead. If you’re ready to get prequalified for an SBA loan, you can use Lendio to quickly compare loan offers from multiple lenders.
For the past five years, she's dedicated more than 10,000 hours of research and writing to more than 2,000 articles about personal finance topics, including building credit, mortgages, and personal and student loans.
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