Key takeaways
- The SBA 504 mortgage helps fund mounted belongings that increase enterprise development.
- It’s supplied by native Licensed Improvement Corporations.
- It may well fund initiatives as much as $5.5 million.
- Its charge construction is extra difficult however cheap versus different SBA loans.
The SBA 504 mortgage may also help small companies trying to finance main belongings like gear and actual property to develop their enterprise and create jobs. SBA 504 loans provide long-term fixed-rate financing of as much as $5.5 million — a lot greater than many standard enterprise loans.
To date in fiscal 12 months 2025, the SBA has permitted over 4,200 companies for 504 loans, totaling practically $4,82 billion in funding, with a mean mortgage measurement of $1.14 million, in response to the 7(a) & 504 Abstract Report. In case you’re trying to safe funding for growth and development, understanding the SBA 504 mortgage software course of is essential.
Earlier than you apply, get to know the eligibility necessities and steps to qualify for and full an SBA 504 software.
What’s an SBA 504 mortgage?
An SBA 504 mortgage is a long-term enterprise mortgage designed for purchasing giant belongings like business gear and actual property. This system is concentrated on belongings that help the enterprise’s development or present extra jobs to staff.
Like all SBA loans, it’s partially assured by the U.S. Small Enterprise Administration, although at a decrease price than different SBA choices.
What’s a Licensed Improvement Firm?
A Licensed Improvement Firm (CDC) is an SBA-certified nonprofit accomplice that helps growing surrounding communities. These group companions are your go-to supply for studying about 504 mortgage {qualifications}, program rules and navigating the appliance course of.
How do SBA 504 loans work?
SBA 504 loans can present as much as $5 million in funding to purchase mounted belongings like actual property. Funding requests for buying, enhancing, modernizing and building of qualifying initiatives could also be eligible for as much as $5.5 million for a number of loans.
The 504 mortgage is assured by the SBA for as much as 40 p.c of the mortgage quantity borrowed. This assure is far decrease than the 7(a) mortgage that ensures as much as 85 p.c of the mortgage.
An extra portion of the 504 mortgage can also be assured by a 3rd get together, equivalent to a financial institution or credit score union. The third get together might assure as a lot as 50 p.c of the mortgage. To spherical out the collateral necessities, your small business will likely be required to place down not less than 10 p.c of the mortgage quantity.
SBA 504 mortgage charges
The 504 mortgage rate of interest is about above the market price for 10-year U.S. Treasury bonds. It normally totals about 3 p.c of the borrowed quantity, baked into the mortgage repayments.
SBA 504 mortgage charges
The 504 mortgage program expenses a number of charges to take care of funding, however the charges may be rolled into the repayments.
|
Kind of charge |
Quantity charged |
|
Assure charge |
0% |
|
Annual service charge |
0.4405% |
|
Lender charge |
0.50%+ |
|
CDC charge |
0.625%+ |
SBA 504 mortgage reimbursement phrases
SBA 504 loans provide 0-, 20- and 25-year maturity phrases. You might have completely different reimbursement phrases on the parts assured by the financial institution versus the Licensed Improvement Firm.
SBA 504 down fee
The SBA 504 mortgage program requires a down fee of not less than 10 p.c. In case you’re a startup enterprise or purchase properties for a particular goal, it’s possible you’ll be required to place down extra money for the mortgage.
What can an SBA 504 mortgage be used for?
You should use this common 504 mortgage for belongings that help enterprise development initiatives. These embody:
| Use of funds | Examples |
| Purchases |
|
| Enchancment initiatives |
|
Ineligible bills
SBA 504 loans are ineligible for the next bills:
- Working capital
- Stock purchases
- Investing or speculating in rental actual property
- Debt consolidation or refinancing that doesn’t meet the certified debt definition in paragraphs (e) and (g) below 13 CFR 120.882
- Financing for AI-related consulting companies, mental property or working capital
What are the SBA 504 necessities?
To get an SBA 504 mortgage, you will need to meet the SBA’s minimal necessities and necessities from the CDC and lender. Lender necessities will fluctuate however could also be aggressive as a result of 504 mortgage borrowing prices and reimbursement phrases are fascinating.
SBA 504 mortgage necessities embody:
- Assembly SBA enterprise measurement pointers
- In all fairness capable of repay the mortgage
- For-profit firm
- Primarily based within the U.S. or U.S. possessions
- Internet value below $20 million
- Common web revenue below $6.5 million, after federal taxes for the previous two years
- A marketing strategy
- Not be a nonprofit, passive or speculative enterprise
How do you apply for an SBA 504 mortgage?
The 504 mortgage program is obtainable by CDCs, that are nonprofit organizations licensed by the SBA to supply this mortgage. You’ll be able to apply in a number of steps:
- Discover a CDC by the SBA’s native help device.
- Contact the CDC straight to start out an software.
- Fill out the appliance. Key managers and staff and anybody with not less than 20 p.c possession within the enterprise might want to apply.
- Present monetary and enterprise paperwork.
- Await 30 to 90 days for SBA approval.
The watch for 504 mortgage approval may be lengthy, however it’s normally definitely worth the wait. The financial institution should underwrite and approve the mortgage. Then, the CDC should internally approve and underwrite its portion of the mortgage. The CDC will then submit the appliance to the SBA to evaluation, approve and authorize the 504 mortgage.
As soon as the mortgage is secured, the financial institution and CDC will disburse its funds to implement and full the venture earlier than the CDC can shut on the mortgage. The SBA will then promote a debenture to safe funds to disburse to the financial institution for ultimate closing.
What are options to SBA 504 loans?
You’ll be able to finance actual property and gear by enterprise loans aside from the 504 mortgage program. Alternate options which will swimsuit you:
- SBA 7(a) loans. One other common SBA mortgage, the 7(a) mortgage can be utilized for normal functions, together with shopping for belongings. It’s supplied by SBA-approved lenders like banks moderately than CDCs. The SBA doesn’t require collateral for loans below $25,000, although lenders may.
- SBA Specific loans. Specific loans work nicely for small bills below $500,000 since that is the utmost mortgage measurement. Reimbursement phrases vary from 5 to 25 years. It’s additionally recognized for sooner approvals than the standard SBA mortgage.
- SBA microloans. Microloans provide funding as much as $50,000, normally by a community-based lender that chooses to take part within the microloan program. These lenders normally purpose to serve underserved communities, offering schooling and different help to assist small companies succeed.
- Tools loans. An gear mortgage is a sort of enterprise time period mortgage that’s secured by the business gear you’re shopping for. Just like the 504 mortgage, it could have a decrease down fee because of the collateral. Tools loans usually have lenient eligibility necessities, equivalent to requiring annual income as little as $100,000.
- Industrial actual property loans. A business actual property mortgage is sort of a mortgage for your small business, besides that the lender considers your small business revenue or income that the property will usher in when approving the mortgage.
Backside line
The SBA 504 mortgage works nicely if you wish to develop your small business by shopping for belongings. You get the advantage of for much longer reimbursement phrases than standard enterprise loans. You additionally work one-on-one with a Licensed Improvement Firm (CDC), a nonprofit specializing in providing most of these loans.
You’re restricted in what you need to use this mortgage for, and it’s a must to meet the SBA’s and lender’s necessities to qualify. On high of that, SBA loans are recognized for his or her sluggish approval course of, whereas different lenders provide quick funding in as little as a number of days.
It’s possible you’ll need to try different mortgage choices in the event you don’t qualify for the 504 mortgage.
