SBA 504 Loans

An SBA 504 loan is built for owner-occupied real estate and long-lived equipment. It pairs a conventional first-lien loan from a participating lender with a second-lien loan from a Certified Development Company, with the SBA guaranteeing the CDC portion.

Q Commercial Capital places 504 scenarios with lenders and CDCs. We are a brokerage, not a lender, a CDC, or the SBA. Eligibility and terms are governed by program rules. Terms vary by lender, property, borrower, and transaction.

Program overview

The 504 structure typically divides the project into three pieces: a conventional first mortgage of roughly half the project cost, a CDC second mortgage backed by an SBA debenture of roughly forty percent, and borrower equity of roughly ten percent. Those proportions are program guidelines, not a guarantee, and the actual structure depends on the project and the lender.

504 proceeds can cover land, building purchase, construction, renovation, and certain long-lived equipment. The property generally must be owner-occupied, with the business using a qualifying share of the space. The CDC portion is typically fixed-rate and long-amortizing, which can make 504 attractive for an owner-user planning a long hold.

Who this program fits

For-profit businesses purchasing, constructing, or renovating a building they will occupy
Owner-users making a long-term real estate investment with a 10-plus-year horizon
Businesses financing long-lived equipment alongside real estate
Borrowers who can meet the program's equity and occupancy requirements
Companies whose project size fits SBA debenture limits and CDC appetite

Eligible property types

Owner-occupied office and professional space
Owner-occupied retail and restaurant real estate
Light industrial, warehouse, and manufacturing facilities
Medical and dental facilities occupied by the practice
Long-lived equipment integral to the business, where program rules permit

Eligible loan purposes

Purchase of land and buildings. Acquiring the real estate the business will occupy.
Ground-up construction. Building an owner-occupied facility, subject to program and lender requirements.
Renovation and modernization. Substantial improvements to an owner-occupied property.
Equipment purchase. Long-lived machinery and equipment, where eligible and paired with a qualifying project.

Owner occupancy and project eligibility

The business must occupy a qualifying portion of the property, and the project must be an eligible 504 use. Occupancy standards differ for existing and newly constructed facilities. The lender and CDC confirm eligibility, and the SBA's program rules control the answer.

Project cost and structure

The 504 structure is built around project cost, with a conventional first lien, a CDC second lien, and borrower equity. Eligible project costs, appraised value, and program debenture limits determine the size of each piece. The borrower needs to document the source of equity and any interim financing.

Business repayment ability

The lender and CDC underwrite the operating business and the principals, including business financials, personal financials, credit, and global cash flow. The real estate collateral supports the loan, but the business is the source of repayment for an owner-occupied facility.

Business, personal, and project financials

Business tax returns and interim statements, personal tax returns and financial statements, a debt schedule, project budget, construction contracts or purchase contract, and evidence of the equity contribution. Startups and expansions have additional requirements.

Property and project documents

Appraisal, environmental review, title, survey, plans and specifications for construction or renovation, permits, leases if any space is not owner-occupied, and a detailed sources-and-uses statement. The CDC and lender coordinate these requirements.

SBA and CDC compliance

SBA forms, eligibility certifications, public-policy documentation, and CDC underwriting. The process is prescriptive, and program rules on occupancy, project cost, and use of proceeds cannot be waived by the lender or broker.

Benefits

Long-term, fixed-rate financing on the CDC portion
Lower down payment than many conventional owner-occupied loans
A structure designed for owner-occupied real estate and long-lived equipment
Predictable payments over a long hold
Two-lender structure can keep more conventional first-lien capacity available

Limitations and risks

Owner-occupancy and eligible-use rules are strict
The process involves a lender, a CDC, and the SBA, so timelines are longer
Program fees and closing costs apply
Debenture limits and project-size thresholds can constrain larger projects
Personal guarantees and collateral requirements are standard

Example Transaction (Illustrative and Hypothetical)

Hypothetical illustration — not a real transaction

This example is hypothetical and is not a quote or a real transaction. A manufacturer buys a 20,000-square-foot building for $3,000,000 and will occupy the majority of it. The project is structured with a conventional first lien, a CDC second lien backed by an SBA debenture, and borrower equity. The lender and CDC underwrite the company's cash flow, the principals' financials, the appraisal, and environmental review. The exact split, rate, and term are set by the program and the participating institutions. No rate or payment is expressed or implied.

Common reasons a deal may not qualify

The business will not occupy the required portion of the property
The project does not fit an eligible 504 use
The borrower cannot document the required equity or repayment ability
The project exceeds program limits or the CDC declines the file
Credit, character, or eligibility issues cannot be resolved under program rules

Alternative structures

SBA 7(a) for a broader range of uses or a smaller project
A conventional owner-occupied loan where the property and borrower fit
A larger equity contribution to reduce the financed portion
Interim bridge financing while the 504 project is processed

Related property types

Related calculators

Frequently asked questions

What is the difference between SBA 7(a) and SBA 504?

7(a) is the broader program and can finance real estate, business acquisitions, equipment, and working capital through a single participating lender. 504 is built specifically around owner-occupied real estate and long-lived equipment, using a conventional first lien plus a CDC second lien backed by an SBA debenture. Eligibility, project size, and structure differ, so the right program depends on the transaction.

Can I use a 504 loan for an investment property?

504 is an owner-occupied program. The business generally must occupy a qualifying portion of the property, and the program rules on occupancy and eligible use are enforced by the lender, the CDC, and the SBA. Pure investment property does not fit the 504 structure.

What determines the terms I am offered?

The lender sets terms after reviewing the property, the borrower, and the transaction. Property type, occupancy, net operating income, debt service coverage, leverage, loan purpose, loan size, term and amortization, recourse, prepayment structure, sponsor experience, credit, and liquidity all move the quote. Two lenders can reach different conclusions on the same file. Terms vary by lender, property, borrower, and transaction, and nothing here is a rate quote or a commitment to lend.

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Terms vary by lender, property, borrower, and transaction.

Information provided is for general educational purposes and does not constitute a commitment to lend. Programs, terms, rates, loan amounts, documentation requirements, and eligibility vary by lender, property, borrower, and transaction. All financing is subject to underwriting, appraisal, title review, due diligence, and lender approval.