SBA 504
SBA 504 Commercial Real Estate Loans
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SBA 504 loans are designed to help small businesses expand, modernize, and create jobs by providing access to affordable, long-term financing. Through this program, eligible businesses can secure fixed-rate funding for major real estate and equipment investments.
The program is administered by the Small Business Administration in partnership with Certified Development Companies (CDCs)—nonprofit organizations that are regulated and certified to facilitate SBA-backed financing.
SBA 504 Loan Highlights
Eligible Property Types:
- Warehouse / Industrial
- Mixed-Use
- Retail
- Medical / Healthcare
- Self Storage
- Hotel / Motel
- Restaurants
- Daycare Facilities
- Assisted Living
Loan Amount
- Up to $5 million
- Up to $5.5 million for manufacturers and energy-efficient projects
Interest Rate
Fixed rate, typically pegged to an increment above 5- and 10-year U.S. Treasury yields (benchmarked alongside LIBOR or equivalent rates)
Loan Term
10 or 20 years
Amortization
10 to 30 years
Maximum Loan-to-Value (LTV)
- Up to 90%
- Hospitality properties capped at 85%
Minimum DSCR
1.20x
Minimum Debt Yield
7–8%
Recourse
Full recourse
Prepayment
- Declining penalty over the first 10 years, eventually reaching 0%
- Loans are assumable; prepayment penalties may not apply in such cases
Collateral Requirements
- The financed project assets serve as collateral
- Personal guarantees required from principal owners
Advantages of SBA 504 Loans
SBA 504 loans offer compelling benefits for qualifying small businesses:
Fixed-Rate Stability: Predictable payments over the life of the loan make financial planning easier.
Low Down Payment: Typically, around 10% of the total project cost—including renovations and soft costs—helping preserve working capital.
Long-Term Financing: Available terms of 10 or 20 years provide stability and manageable repayment structures.
Competitive Interest Rates: Even when factoring in fees and closing costs, rates remain highly competitive.
Financing of Soft Costs: Expenses such as legal fees, appraisals, and environmental studies can often be rolled into the loan.
Disadvantages of SBA 504 Loans
Despite their strengths, SBA 504 loans have some limitations:
Limited Availability: Only available to small businesses and for owner-occupied properties.
Job Creation Requirement: Businesses must create or retain at least one job for every $65,000 borrowed.
Longer Approval Timeline: The process involves multiple parties (borrower, lender, and CDC), which can extend underwriting and approval timelines. SBA review is centralized, and underwriters may require detailed documentation for any irregularities.
SBA 504 FAQ's
SBA 504 Loan Features
- Long-term, fixed-rate financing
- Designed for business expansion and modernization
- Structured through partnerships between lenders and CDCs
- Emphasis on economic development and job creation
Who Is Eligible?
- Small businesses that meet SBA size standards
- Businesses operating for profit within the U.S.
- Borrowers able to demonstrate repayment ability
- Companies that meet job creation or retention requirements
What Properties Are Best Suited?
What Can an SBA 504 Loan Be Used For?
- Purchasing commercial real estate
- Constructing new facilities
- Renovating or modernizing existing properties
- Acquiring long-term machinery or equipment
- Improving energy efficiency
Amortization
SBA 504 loans offer flexible amortization schedules ranging from 10 to 30 years, helping borrowers balance monthly payments with long-term financial goals.
Collateral Requirements
The financed assets typically serve as primary collateral. Additionally, principal owners are required to provide personal guarantees.
Available Interest Rates
Rates are fixed and tied to U.S. Treasury benchmarks, offering stability and protection from market volatility.
Can You Refinance an SBA 504 Loan?
Yes—SBA 504 loans can be refinanced under certain conditions, typically to improve cash flow, secure better rates, or restructure existing debt.