- SBA 504 loans provide fixed-rate financing for commercial real estate and major equipment—with rates around 5.5%-6.5% for 25-year terms.
- The structure involves two loans: a bank provides 50% (first mortgage), a CDC provides 40% (SBA-backed, fixed rate), and you put down 10%.
- Maximum CDC portion is $5 million ($5.5 million for manufacturers), with terms up to 25 years for real estate.
- 504 is best for large real estate or equipment purchases where fixed-rate predictability matters; 7(a) is better for business acquisitions and flexibility.
Looking for the lowest fixed-rate financing for commercial real estate or major equipment? The SBA 504 loan program offers some of the best terms available—fixed rates, 25-year terms for real estate, and down payments as low as 10%.
This guide covers how SBA 504 loans work, who qualifies, and when they make more sense than SBA 7(a) loans.
What Is an SBA 504 Loan?
Program Overview
The SBA 504 loan program provides long-term, fixed-rate financing for major fixed assets—primarily commercial real estate and large equipment purchases. It’s administered through Certified Development Companies (CDCs), which are nonprofit organizations that partner with conventional lenders.
Key Features
- Fixed interest rates: The SBA-backed portion is always fixed
- Long terms: 10, 20, or 25 years
- Low down payments: As low as 10%
- Large loan amounts: Up to $5.5 million SBA portion (higher for manufacturers)
- Fully amortizing: No balloon payments
SBA 504 is ideal for: businesses buying commercial real estate, companies purchasing major equipment ($500K+), borrowers who want fixed-rate predictability, and larger projects where rate savings matter over the life of the loan.
The 504 Loan Structure
Two Loans, One Project
Unlike SBA 7(a) (one loan from one lender), 504 loans involve two loans:
| Component | Percentage | Source | Rate Type |
|---|---|---|---|
| First mortgage | 50% | Bank or lender | Variable or fixed |
| Second mortgage (SBA/CDC) | 40% | CDC (SBA-backed) | Fixed |
| Borrower equity | 10% | Borrower | N/A |
How It Works
- Bank provides 50%: Conventional first mortgage (bank’s own terms)
- CDC provides 40%: SBA-backed second mortgage at fixed rate
- You provide 10%: Down payment (may be higher for special-use properties)
This structure reduces risk for lenders (the bank’s 50% is senior and fully secured) while providing you with access to long-term fixed-rate financing on 40% of the project. For large projects, the fixed-rate CDC portion often makes the overall financing very attractive.
SBA 504 Loan Amounts and Terms
Maximum Loan Amounts
| Project Type | Maximum CDC Portion |
|---|---|
| Standard projects | $5,000,000 |
| Manufacturing projects | $5,500,000 |
| Small manufacturing | $5,500,000 |
| Public policy goal projects | $5,500,000 |
Note: These are limits on the CDC/SBA portion (40%). Total project size can be much larger.
Example: $3 Million Project
| Component | Percentage | Amount |
|---|---|---|
| Bank first mortgage | 50% | $1,500,000 |
| CDC second mortgage | 40% | $1,200,000 |
| Borrower equity | 10% | $300,000 |
Repayment Terms
| Asset Type | Maximum Term |
|---|---|
| Real estate | 25 years |
| Equipment (20+ year useful life) | 20 years |
| Equipment (10+ year useful life) | 10 years |
SBA 504 Interest Rates (February 2026)
How 504 Rates Are Set
The CDC/SBA portion of 504 loans is funded through debenture sales. Rates are based on market rates at the time of funding plus a spread for CDC fees and the SBA guarantee fee.
Current Rate Ranges (February 2026)
| Term | Approximate Rate Range |
|---|---|
| 10-year debenture | 5.25% – 5.75% |
| 20-year debenture | 5.50% – 6.25% |
| 25-year debenture | 5.75% – 6.50% |
Rates are fixed at funding and do not change over the loan term.
For a 504 loan, you’ll have two payments: the bank portion (50%) at the bank’s rate, and the CDC portion (40%) at the fixed debenture rate. The blended rate depends on both portions. For large projects, the fixed-rate CDC portion often makes the overall financing very attractive compared to all-variable alternatives.
Eligible Uses of 504 Funds
Approved Uses
- Real estate purchase: Buying commercial property
- Real estate construction: New building construction
- Real estate renovation: Major improvements to existing property
- Equipment purchase: Major equipment with long useful life
- Land purchase: Land for business use
- Debt refinancing: Under specific conditions
Working capital: Use SBA 7(a) instead. Inventory: Not an eligible use. Debt consolidation: Limited—504 is for fixed assets. Speculation: Must be owner-occupied.
Eligibility Requirements
Business Requirements
- For-profit business: Organized for profit, operating in U.S.
- Net worth: Tangible net worth under $20 million
- Net income: Average net income under $6.5 million (past 2 years)
- Size standards: Must meet SBA size standards
Property Requirements
- Owner-occupancy: Existing buildings: 51% occupancy. New construction: 60% initially, 80% within 3 years
- Business purpose: Property must be for business use
- U.S. location: Property must be in the United States
Job Creation/Retention
504 loans have a job creation requirement: the project should create or retain one job per $90,000 of CDC debenture funding (or $120,000 for small manufacturers). Certain public policy goals can satisfy this requirement.
504 vs. 7(a): Which Is Better?
| Feature | SBA 504 | SBA 7(a) |
|---|---|---|
| Best for | Real estate, major equipment | Flexible use, acquisitions |
| Interest rate | Fixed (CDC portion) | Variable or fixed |
| Maximum amount | $5.5M CDC + bank | $5 million |
| Down payment | 10-20% | 10-20% |
| Number of loans | 2 | 1 |
| Working capital | No | Yes |
| Speed | Slower (60-90 days) | Faster (45-75 days) |
| Closing complexity | Higher (2 lenders) | Lower (1 lender) |
Choose 504 When:
- You want the lowest possible fixed rate
- Project is primarily real estate or major equipment
- Project size exceeds $3 million
- You prioritize payment predictability over speed
Choose 7(a) When:
- You need flexibility (combine with working capital)
- Speed is important
- You’re acquiring a business (with or without real estate)
- You prefer one loan, one lender simplicity
If you’re buying a business that includes real estate, SBA 7(a) is often simpler. The business and real estate can be financed together in one loan. 504 would require separating the components into two distinct transactions.
SBA 504 Application Process
Step 1: Find a CDC
Unlike 7(a), 504 loans require a Certified Development Company. CDCs are regional nonprofit organizations certified by the SBA. Many lenders have CDC relationships and can coordinate for you.
Step 2: Gather Documentation
- Business tax returns (3 years)
- Personal tax returns (3 years)
- Personal Financial Statement (SBA Form 413)
- Business financial statements
- Property information (appraisal, environmental)
- Business plan or project narrative
- SBA Form 1919
Step 3: Bank Approval
The bank must approve their 50% first mortgage portion. This proceeds like a conventional commercial loan.
Step 4: CDC/SBA Approval
The CDC reviews the project and submits to the SBA for authorization of the 40% debenture portion.
Step 5: Closing
504 loans typically have two closings—the bank portion may close first, with the CDC portion closing after debenture funding (monthly debenture sales).
Timeline to Closing
Typical 504 Timeline
| Phase | Duration |
|---|---|
| Application and bank approval | 2-4 weeks |
| CDC review and SBA authorization | 2-3 weeks |
| Third-party reports (appraisal, environmental) | 3-4 weeks |
| Closing preparation | 1-2 weeks |
| Debenture funding | Variable (monthly sales) |
| Total | 60-90 days |
CDC debentures are sold monthly. If your authorization falls between sales, you may need to wait for the next sale to lock in your rate. This can add 2-4 weeks to the timeline.
SBA 504 loans offer exceptional terms for real estate and major equipment purchases—fixed rates around 5.5%-6.5%, terms up to 25 years, and down payments as low as 10%. The tradeoff is complexity (two loans, two lenders) and a longer timeline. For pure real estate purchases over $1.5M where you want rate predictability, 504 often provides the best long-term value. For business acquisitions or when flexibility matters, 7(a) is typically the better choice.
Frequently Asked Questions
The CDC/SBA portion (40%) has a fixed rate based on market rates at funding time—currently around 5.5%-6.5% for 25-year terms. The bank’s 50% portion is priced separately at the bank’s own terms.
Standard is 10%. Special-use properties (gas stations, hotels, etc.) may require 15-20% down payment.
No. 504 is only for fixed assets—real estate and major equipment. For working capital, use SBA 7(a).
A Certified Development Company is a nonprofit organization certified by the SBA to provide 504 financing. They originate and service the SBA-backed portion of 504 loans.
504 offers lower fixed rates but more complexity (two loans). For pure real estate purchases over $1.5M, 504 often provides better long-term savings. For smaller deals or when you need working capital too, 7(a) is often simpler.
Yes, 504 loans can refinance existing real estate debt under certain conditions. However, 7(a) refinancing is often more flexible for most situations.
