The SBA 504 Loan Program

An SBA 504 Loan Program provides long-term, fixed-rate financing to assist small businesses expand by acquiring land, buildings, machinery and equipment. The loans are administered by Certified Development Companies such as SPEDCO in conjunction with commercial lending institutions.

In exchange for attractive long-term, fixed-rate financing, the SBA expects that its small business loan recipients will continue to expand, create and retain jobs, thereby benefiting the surrounding businesses and communities. The SBA 504 loan program is an economic development stimulus package designed for Main Street America!

SBA 504 Loan Features & Benefits

For Small Business Customers
Low down payment Borrowers typically fund 10% of the project cost, which preserves working capital for business expansion. Start-up projects or specialized purpose facilities require more equity.
Loan size Up to $5 million for a typical project, or if the business is located in a rural area, if the owners belong to a minority category, or if the business need meets a public policy purpose. Manufacturing companies with specific NAICS codes can obtain up to $5.5 million in SBA funds, as can companies meeting certain environmental or energy efficiency goals.
Fixed interest rate Helps minimize cash flow crunch that companies face during an expansion mode.
10, 20 or 25-year loan terms Keep monthly debt service affordable and constant, plus peace of mind knowing payments will not increase in the future.
For Lenders
Reduced risk The bank lends 50% of the project cost as the first mortgage lender. The SBA 504 loan program funds 40% of the project cost in a second mortgage position, and the borrower provides 10% cash or land equity.
Alternative option The low down payment makes SBA 504 financing possible even if conventional financing is not an option.
Commitment to business growth SBA 504 loans are another way lenders can help their small business customers expand and grow.

SBA 504 Loan Structure

How is an SBA 504 project structured?

SPEDCO works with the SBA to provide up to 40% of the total project cost. The participating lender normally finances at least 50% of the cost. The borrower typically puts down as little as 10% of the total project cost.

% Project Cost Source of Funds Interest Rate
*Start-up AND/OR Special Purpose Building may require a higher percentage of equity. Costs do not include fees.
50% $1,250,000 Private Lender Fixed or Variable
40% $1,000,000 SPEDCO/SBA Fixed
10%* $250,000 Business Borrower
Total $2,500,000

Why is an SBA 504 loan the right choice for commercial lending?

Compared to a 7(a) loan, an SBA 504 loan offers:

  • A fixed rate of interest
  • Lower fees, upfront and during the life of the loan
  • Huge cost savings, especially in a rising-interest rate environment
Huge cost savings, especially in a rising-interest rate environment
CDC 504 Debenture Loan Bank 7(a) Loan
*including bank closing costs
Total cash savings calculated using the assumption that the prime interest rate remains at the current level. An increase in the prime interest rate would substantially increase the total cash savings.

The above is our best estimate with the information that is currently available.

SBA 504 (net) $400,000 40.00%
Bank $500,000 50.00% $900,000 90%
Down Payment $100,000 10.00% $100,000 10%
Total Project $1,000,000 100% $1,000,000 100%
Bank Debenture Total Bank
Loan Amount $500,000 $400,000 $900,000 $900,000
Interest Rate 6.0000% 5.2500% 6.00%
Years Amortized 20.0 / 20.0 20.0 25.0
Bank Points
SBA Guaranty Fee
CDC Process Fee $6,000
CDC/SBA Legal Fee $2,000
SBA Guarantee Fee $2,000
Funding Fee $1,000
Underwriter Fee $1,652
Other Fees
Total Fees $2,500 $12,652 $15,152 $28,125
Total Loan Amount $502,500 $413,000 $915,500 $928,125
Monthly Payment $3,600.07 $3,079.22 $6,679.28 $5,979.92
Effective Interest Rate 6.00% 5.25% FIXED 5.62% 6.00% FLOATING
Total Principle and Interest $756,278 $739,012 $1,495,290 $1,739,977
Cash Down* $100,000 $100,000 $100,000
Total Cash $1,595,290 $1,893,977
Total Cash Savings $298,687

The SBA 504 loan program is a partnership program between a Certified Development Company (CDC), such as SPEDCO, and a lender. The SBA 504 loan program is an economic development loan program to promote growth and job creation in American small businesses by providing fixed-rate, long-term financing for land, buildings and manufacturing equipment or machinery.

What role does SPEDCO play in an SBA 504 loan?

SPEDCO is the liaison with the SBA, helping lenders and borrowers through the paperwork and approval process. We structure the project, prepare loan documentation and monitor the whole project through closing. We also service all aspects of the SBA 504 loan for the entire term of the loan. We have earned the reputation for being ethical, efficient, and totally committed to customer service.

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SBA 504 Loan Eligibility

SBA 504 loan criteria

An SBA 504 loan is fixed-asset financing for land, buildings and manufacturing equipment or machinery with a useful life of 10 years.

Size of loan

The maximum loan size through the SBA 504 loan program is typically $5 million. Manufacturing companies with certain specific NAICS codes and projects meeting certain environmental or energy efficiency goals can obtain up to $5.5 million in SBA funds. The minimum loan size is $50,000.

A business can obtain more than one loan from the SBA, as long as the total outstanding balances do not exceed the maximum loan amount.

For a business to qualify for an SBA 504 loan:

Business is a for-profit, owner-operated entity that has a net worth of less than $15 million and a net-profit-after-tax averaging less than $5 million for the previous two years.

The small business must create or retain one full-time equivalent job for every $75,000 loaned by the federal government ($120,000 for manufacturing).

Start-up businesses are not excluded from the SBA 504 loan program, but higher levels of financial equity injection are required for companies less than two years old.

SBA 504 Loan Program Parameters

Debenture Amounts

  • Debenture limits range from $50,000 to $5,000,000 in $1,000 increments for ‘regular’ projects.
  • Up to $5.0 million in SBA funds are available for businesses in rural areas with a population of less than 50,000, if the business is majority-owned by a woman, veteran, or a racial minority, or the business locates in a revitalization district.
  • Up to $5.5 million in SBA funds are available for manufacturing industries within the NAICS sectors of 31, 32 and 33, or for projects that meet an environmental or energy efficiency public policy goal.
  • The debenture amount cannot be greater than 40% of the project cost, or the maximum dollar amount for the type of project being financed (typically $5,000,000) whichever is less. The debenture amount cannot exceed the bank’s portion of the loan.
  • At least one job must be created or retained for every $75,000 of 504 funds (for manufacturing companies, at least one job for every $120,000 in SBA funds).

Number of SBA Loans Outstanding

  • A business can obtain more than one loan from the SBA, as long as the total outstanding balances do not exceed the maximum loan amount.

Interest rates and Payments

  • The SBA will establish a rate of interest each month, typically on the second Tuesday, which is also published every quarter in the Federal Register. This rate will supersede any state limitations on the rate of interest to be charged for a commercial loan associated with 504 funding.
  • Loan payments are automatically debited from the company’s bank account on the first day of each month, commencing with the first month immediately following the sale of the debenture.


  • For new construction, the company must occupy at least 60% of the building immediately and 80% of the space by year 10. Only 20% of the total space may be rented out permanently.
  • For acquisition of an existing building, the company must permanently occupy 51% of the building.
  • The owner(s) of the company may own the real estate and lease it back to the company; however, the company must provide a full corporate guaranty on the loan.

Personal Guaranty

  • Anyone owning 20% or more of either the operating company and/or the real estate entity will be required to give a full, unlimited personal guaranty on the loan.
  • Life insurance in the amount of the debenture may be required to be collaterally assigned to the SBA on all projects.


  • Our trained professional staff assists business owners in completing the application, structuring the project, preparing loan documentation and monitoring the project through closing. In addition, this staff services all aspects of the SBA loan, including monitoring annual financial statements, for the entire term of the loan.
  • The project review process is prescribed by SBA guidelines and it is important to coordinate the preparation of the materials to insure timely action on the application. SPEDCO Loan Review Committee members must receive the required information in advance of their meetings to allow time for their consideration.

SBA 504 Loan Approval & Documents

Business documentation

  • History and description of business
  • Last three fiscal year-end balance sheets and income/operating statements
  • Last three years of corporate tax returns
  • Names, addresses and three years of federal tax return statements for any subsidiaries and/or affiliates, if applicable
  • Current balance sheet and income/operating statement (not more than 90 days old)
  • Filed copy of Articles of Incorporation and By-laws, and/or Partnership Agreement and/or Limited Liability Company Organizational documentation, or Certificate of Assumed Name
  • Disclosure statement that tells of previous SBA financing, previous bankruptcy or pending lawsuits
  • Copy of franchise agreement, franchisor’s FTC Disclosure Statement; or License Cooperative, Membership, dealership or similar Agreement,if applicable
  • Aging of Accounts Receivable and Accounts Payable that coincide with current financial statement.
  • Request for IRS Transcript

Management background information

  • Personal financial statements of owners of small business, as well as last three years of personal tax returns
  • Personal history statement (SBA Form 912) on all officers and directors
  • Resumes of all officers and key management of small business being assisted
  • Copy of Driver’s License for all persons who own 20% or more of the business or real estate

Project documentation

  • Purchase Agreement for the land and/or building
  • Completed and executed Retainer Agreement, $1,500 application deposit and Certification page
  • Life insurance in the amount of the debenture may be required to be collaterally assigned to the SBA on all projects. (Note: not needed until loan closing)
  • Preliminary plans and specifications
  • Written cost estimates for the project
  • As-built appraisal of the project (NOTE: This must be ordered by the participating lender)
  • Commitment letter from the participating lender
  • Two years’ projections of earnings showing the effect of the proposed project (plus a month-by-month statement of cash flow for a new business)
  • Copy of Environmental Analysis, addressed to the SBA (typically ordered by the participating lender), and Hazardous Waste License application (if applicable)