Program Requirements


Eligibility for SBA 504 Loans
  • Organized as a for-profit business – The business has to be for profit.
  • Legal entity – corporation, partnership, sole proprietor, limited liability company.
  • Any type of legitimate business– manufacturing, wholesale, service, professional service or retail.
  • “Small” business – either: net worth of $15 million & net profits after taxes under $5.0 million or meet SBA’s other size standards (by sales or number of employees depending on SIC code).
  • Planning to use the loan proceeds for capital investment including land, building, leasehold improvements, renovation, construction, machinery & associated soft costs (The SBA 504 loan program is not a working capital program.)
  • Another lender must be willing to participate in the financing. The SBA 504 loan finances up to 40% of the total project cost in a subordinate lien position. The other lender finances 50% in a first lien position. The business or its owner typically puts in 10%. Economic development goals must be achieved through the project being financed.
  • Owner-user of the project being financed (51% occupancy if existing building; 60% occupancy if new construction) Two or more unrelated small businesses may receive a SBA 504 loan to buy or construct a building as long as they, together, will occupy at least 51% an existing building or 60% of new construction. 
Ineligible Borrowers Include:
  • Nonprofits
  • Speculative development
  • Lending institutions, insurance companies
  • Gambling concerns and private clubs
  • Businesses of a prurient nature
  • Businesses that exclude specific races, sex, or creed
  • Businesses related to marijuana
Eligible Use of Funds:
  • Purchase land, purchase or construct building
  • Modernize, renovate or improve building
  • Purchase machinery and equipment with 10-year useful life
  • Soft costs
  • No maximum total project size
  • Job creation one per $75,000 in SBA 504 funds or meeting other economic development goals
    • $120,000 for small manufactures
  • Maximum SBA 504 loan size $5.0 M unless you meet a Public Policy Goal.
  • Maximum SBA 504 Loan is $5.5 M if one of the following Public Policy Goals is met:
  • Business district
  • Revitalization
  • Exporting
  • Minority enterprise
  • Reduce energy usage
  • Veteran owned (51% or more)
  • Women owned (51% or more)
  • Rural development
  • Modernization
  • Adverse impact of Federal fund reductions
  • Upgrading for health, safety, or environmental reasons 
Ineligible Use of Funds:
  • Working capital
  • Inventory
  • Rolling stock
  • Construction period financing 
Other Requirements:
  • Personal guaranty by 20% or greater owners. 

Loan Term

Maturity options of 25 or 20 years are available on the SBA 504 debenture which include commercial real estate.  10 year maturity options are available on equipment only deals and are subject to a useful life of at least 10 years.

A minimum of 10 years is required from the private lender on real estate financing and 7 years on machinery and equipment projects.

Borrower Injection

The small business must provide at least 10% of the project cost as equity or subordinated debt.  An additional 5% injection is required for a new business as well as an additional 5% on “special” purpose properties.  The maximum down payment, which could ever be requested, on a 504 loan would be 20%!

The down payment can be in the form of equity from the business itself or the borrower’s personal resources.  If necessary, other sources may provide a loan for the borrower’s equity contribution.

The down payment requirement may change based on business type and other factors.

Loan Collateral

The SBA 504 loan is secured with a lien on real estate and equipment assets.  If credit is unusually risky, additional collateral may be required.

Owner Occupied

The business must occupy at least 51% of the building being purchased or renovated immediately upon acquisition and/or completion of renovations.

If constructing a new building, the business must occupy at least 60% of the space upon completion and may lease out the remaining 40%.

The SBA 504 Program is not designed for use by developers or speculators.