Demystifying the SBA 504 Loan Program: Your Guide to Commercial Real Estate Financing

Apr 22, 2024

Understanding the SBA 504 Loan Program

The Small Business Administration (SBA) 504 Loan Program is a powerful tool for small businesses looking to finance the purchase of commercial real estate. This program offers long-term, fixed-rate financing that can cover up to 90% of the total project costs, making it an attractive option for entrepreneurs and small business owners.

How Does the SBA 504 Loan Program Work?

One of the key features of the SBA 504 Loan Program is that it involves three parties: the borrower, a conventional lender, and a Certified Development Company (CDC). The borrower typically contributes 10% of the project costs, while the CDC provides 40% in a second mortgage, and the conventional lender covers the remaining 50%.

commercial real estate financing

Benefits of the SBA 504 Loan Program

There are several benefits to utilizing the SBA 504 Loan Program for commercial real estate financing. These include:

  • Low down payment requirements
  • Long-term fixed interest rates
  • Lower risk for conventional lenders
  • Opportunity to preserve working capital

Eligibility Criteria

In order to qualify for an SBA 504 loan, businesses must meet certain eligibility criteria. These typically include:

  • Being a for-profit business
  • Using the loan proceeds for eligible purposes, such as purchasing land or buildings
  • Meeting the SBA size standards
commercial property

Application Process

The application process for an SBA 504 loan can be complex, but working with an experienced lender and CDC can help streamline the process. Businesses will need to provide detailed financial information, business plans, and other documentation to support their loan application.

Key Considerations

Before pursuing an SBA 504 loan, it's important to carefully consider the long-term implications for your business. While the program offers many benefits, there are also potential drawbacks to be aware of, such as restrictions on how the loan proceeds can be used.

small business loan


The SBA 504 Loan Program can be a valuable resource for small businesses seeking to finance the purchase of commercial real estate. By understanding how the program works, its benefits, and the eligibility criteria, entrepreneurs can make informed decisions about whether an SBA 504 loan is the right financing option for their business.