An SBA 504 loan is long-term, fixed-rate financing for buying, building or renovating the real estate your business occupies, or for machinery with a useful life of at least 10 years. A 504 loan splits the project three ways. A bank lends at least 50% with a first lien, a certified development company (CDC) lends up to 40% through a debenture the SBA guarantees in full, secured by a second lien, and the business puts in at least 10%, or more for a newer business or a special-purpose building. The CDC's share goes up to $5 million, or $5.5 million for some projects, over 10, 20 or 25 years, at a rate set each month when the debentures are sold to investors.
The rules below come from the SBA's 504 loan page and SOP 50 10 8.1, the SBA's lending rulebook, which took effect on October 1, 2026. Our page on SBA-equivalent and bank loans covers the long-term loans available through our partners.
How an SBA 504 loan works
The SOP describes 504 as an economic development program meant to create jobs and help small businesses grow, which is why every project carries a job target. Three parties fund each project.
| Project type | Bank (first lien) | CDC debenture (second lien) | Borrower |
|---|---|---|---|
| Standard project | 50% | 40% | 10% |
| New business (two years or less) or limited or special-purpose property | 50% | 35% | 15% |
| New business and special-purpose property | 50% | 30% | 20% |
The bank makes an ordinary commercial loan for its half and usually holds the first lien on the property. The CDC's loan is funded by a debenture, a bond the SBA guarantees 100% and sells to investors, and it usually sits in second position on the same property. The borrower's share is the down payment, and the SOP lets it be borrowed if that debt sits behind both the bank loan and the debenture. Special-purpose property is a building that is hard to use for anything else, and the SOP's examples include hotels, car washes and gas stations.
Because a debenture is sold only after the project is finished, an interim lender (the bank or another lender) covers the CDC's share during the purchase or construction, and the debenture proceeds repay that interim loan when they arrive.
Who the SBA 504 lenders are
You deal with two lenders on one project. CDCs are nonprofit corporations, certified and regulated by the SBA, and the SBA says 504 loans are available only through them. Their trade association, the National Association of Development Companies, describes them as nonprofits lending to encourage small business growth locally. The bank side is a private lender that must commit to its loan in writing before the CDC applies. Both underwrite the same file, and SBA 504 financing closes only when both are satisfied.
What a 504 loan can fund
A 504 loan finances fixed assets that the business uses itself. The SBA's page and the SOP list these uses.
- You can buy land or an existing building, construct a new building, or convert, expand or renovate one you already have.
- You can buy machinery and equipment with a useful life of at least 10 years, including the cost of installing it.
- Professional fees tied directly to the project, such as title insurance, surveys and zoning work, can be included, and furniture and fixtures can be too when they are a minor part of the project.
- Under conditions set in the SBA's rules, a 504 loan can refinance qualified debt on fixed assets, which our guide to commercial equity loans explains alongside other ways to borrow against a building.
A 504 loan can't pay for working capital or inventory, and it can't buy property as a speculation or as a rental investment. When a project involves buying a business, the SOP limits 504 money to the fixed assets, and receivables or goodwill have to be financed another way, which may be a 7(a) loan, as our guide to business acquisition loans shows.
The occupancy rules
The building has to be mostly yours to use. Under the SOP, a business buying or improving an existing building must occupy at least 51% of the rentable space and may lease the other 49% to tenants. In a new building, the business must occupy 60% at once, may permanently lease up to 20%, and may temporarily lease another 20% if it plans to use some of that space within three years and all of it within 10. Owners can hold the building in a separate real estate company, as long as that company leases 100% of the property to the operating business and the operating business meets the same tests.
The job creation and public policy goals
The SOP requires a project to create or retain one job for every $95,000 the SBA guarantees, or one job per $150,000 for a small manufacturer or a qualifying energy project. A $400,000 debenture at $95,000 a job works out to about four jobs created or kept.
A project that falls short on jobs can qualify through one of the community development or public policy goals in 13 CFR 120.862, as long as the CDC's whole 504 portfolio still meets its job average. The goals include revitalizing a business district, expanding exports, expanding businesses owned by women, veterans or minorities, rural development, and cutting a facility's energy use by at least 10%. If a project meets neither test, the debenture is reduced until it does.
Debenture maximums and terms
The smallest debenture is $25,000. The largest is $5 million in total outstanding 504 debentures for one business and its affiliates, or $5.5 million per project for small manufacturers (NAICS sectors 31 to 33, with all production in the United States) and for energy projects that cut consumption by at least 10% or generate more than 15% of the facility's power from renewable sources. Those $5.5 million projects don't count against the $5 million limit. The cap applies only to the debenture, so on a project above $12.5 million the bank carries more than half.
The term follows the useful life of what the loan buys. Real estate gets up to 25 years, machinery and equipment get at least 10, and a project that mixes the two takes the term of whichever makes up most of the proceeds. The bank's loan has to run at least seven years alongside a 10-year debenture and at least 10 years alongside a 20- or 25-year one.
SBA 504 loan rates and how the debenture rate is set
The CDC's portion carries a fixed rate for the life of the loan. Debentures are sold to investors once a month, and the SOP says the rate is based on the market for long-term government debt at the time of sale, with the 10-year Treasury commonly the benchmark for 20- and 25-year debentures and the 5-year Treasury for 10-year ones. So the rate changes monthly, and yours is fixed when your debenture is sold. The bank prices its half separately.
For October 2026, one certified development company published rates of 6.97% for 25 and 20 years and 6.59% for 10 years, with rates about a quarter point lower for manufacturers, food supply chain businesses and rural businesses because their SBA fees are waived. Ask your CDC for the latest sale and whether its quoted rate includes the ongoing fees.
The fees on a 504 loan
Most 504 fees are charged on the debenture and rolled into it. The SBA's FY 2027 504 fee notice and the SOP's fee table set them as follows.
- For loans approved from October 1, 2026 through September 30, 2027, the SBA's upfront guaranty fee is 0.50% of the debenture and its annual service fee is 0.203% of the balance, and both are waived for manufacturers, listed food supply chain businesses and businesses in rural areas.
- The CDC can charge a processing fee of up to 1.5% of the net debenture, a closing fee for legal and closing costs, and a servicing fee of at least 0.625% a year on the unpaid balance.
- A funding fee takes 0.25% of the net debenture, and the underwriters who sell the debentures take 0.4% of a 20- or 25-year debenture or 0.375% of a 10-year one.
- The SBA charges a one-time participation fee of 0.50% of the bank loan when the bank holds the senior lien, and the borrower may be the one who pays it.
A worked example of a $1,000,000 building purchase under 504
Say a machine shop that has operated for six years buys the building it leases for $1,000,000 and will occupy all of it, so the standard split applies. The figures follow the SOP's own fee calculation, and the closing cost, the bank's rate and the use of the October 2026 debenture rate are examples only.
- The bank lends $500,000 in first position, and the shop puts in $100,000.
- The CDC's net debenture is $400,000. Adding the 0.50% SBA guaranty fee ($2,000), the 0.25% funding fee ($1,000), a 1.5% CDC processing fee ($6,000) and an example $2,500 in closing costs brings the total to $411,500.
- For a 25-year debenture, the SOP divides that total by 0.996 to add the underwriter's fee and rounds up to the next even thousand, which gives a gross debenture of $414,000, with a $1,656 underwriter's fee and about $844 left over that goes back to the shop.
- At 6.97% over 25 years, the $414,000 debenture comes to about $2,918 a month. If the bank lends at an example 7.25% amortized over 25 years, its payment is about $3,614, for a combined $6,532 a month.
- As a manufacturer (NAICS sector 33), the shop would skip the $2,000 guaranty fee and the annual service fee under the FY 2027 notice.
For comparison, a $900,000 7(a) loan for the same building would carry a 75% guarantee, and under the FY 2027 7(a) fee notice its upfront fee is 3.5% of the $675,000 guaranteed portion, or $23,625. The manufacturer's waiver wouldn't help, since it covers 7(a) loans of $700,000 or less.
SBA 504 vs 7(a)
Both programs can buy owner-occupied real estate and equipment, and both use the same core eligibility rules, which our guide to SBA loan requirements covers in full. They differ in structure, cost and flexibility.
| SBA 504 | SBA 7(a) | |
|---|---|---|
| What it funds | Owner-occupied real estate, construction and renovation, machinery with a 10-year useful life, qualified refinancing | Working capital, equipment, real estate, furniture and supplies, refinancing and buying a business (see the SBA's 7(a) page) |
| Maximum | $5,000,000 debenture, or $5,500,000 for some projects, with no SBA cap on the bank loan | $5,000,000 |
| Who lends | A bank (50% or more) and a CDC (up to 40%) | One lender, with an SBA guarantee of 85% up to $150,000 and 75% above |
| Down payment | 10%, or 15% to 20% for a new business or special-purpose property | Set by the lender for most established businesses, at least 10% for a start-up or a business purchase |
| Rate | Fixed on the CDC portion, set at the monthly sale, with the bank pricing its own part | Fixed or variable, negotiated with the lender up to SBA maximums |
| Term | 10, 20 or 25 years | Up to 10 years for most uses, 25 for real estate |
| Upfront SBA fee (FY 2027) | 0.50% of the debenture, waived for manufacturers, food supply chain and rural businesses | 2% to 3.75% of the guaranteed portion by loan size, waived at $700,000 or less for the same groups |
A 504 loan tends to fit when the project is mostly a building or long-life machinery, the amount is large, and you want a fixed rate on a big share of it with a small down payment. A 7(a) loan tends to fit when the money has to cover more than fixed assets, such as working capital or the goodwill in a business purchase, when the loan is smaller, or when one lender and one closing matter more than the lowest fees.
With a bank and a CDC both underwriting, and the debenture funded only after the project is complete, a 504 loan tends to take longer than a 7(a), as our article on how long it takes to get a business loan explains. A newer business can still use 504 with 15% down, and our guide to startup business loans covers the other routes open to younger companies.
How we fit into an SBA 504 project
Today Capital Group is a funding broker, and we don't make 504 loans or act as a CDC. Through our partners we offer SBA-equivalent loans, long-term financing for buildings, equipment and expansion, and the partner decides the terms. A true 504 loan comes from a CDC and its bank partner. We tell you which documents the lender will want (usually three years of business tax returns, an interim profit and loss statement, a debt schedule and a personal financial statement for each owner of 20% or more) and keep the file moving. There is nothing to pay to apply or to see offers, and no obligation to accept one.
Some needs can't wait weeks for an SBA closing, and a 504 loan doesn't cover working capital in any case. Revenue-based financing provides $5,000 to $2,000,000, typically within one to two business days, repaid with a set daily or weekly payment sized on your sales, and usually without collateral. Equipment that won't last 10 years, or that you need sooner, often suits equipment financing, with offers typically in one to two business days.
If you're planning to buy or build the space you work in, gather three years of business tax returns, a current profit and loss statement and the property details, then apply or call us at (818) 351-0225, and we'll tell you what the lender will need to review the project.
Frequently asked questions
How does a 504 SBA loan work?
A bank lends at least 50% of the project cost with a first lien, a certified development company lends up to 40% through an SBA-guaranteed debenture with a second lien, and the business puts in at least 10%, then repays both loans monthly, with the CDC portion at a fixed rate over 10, 20 or 25 years.
Is it hard to get a 504 loan?
It takes more paperwork and time than most financing, because a bank and a CDC both underwrite the file, the business must occupy at least 51% of an existing building, and the project must create or keep jobs or meet a public policy goal, though the down payment is often only 10%.
What is the SBA 504 loan rate today?
The rate changes every month because it is set when debentures are sold to investors, and for October 2026 one CDC published 6.97% for 20- and 25-year loans and 6.59% for 10-year loans, so ask a CDC for the most recent sale before you plan around a number.
What is the difference between an SBA 504 and 7A loan?
A 504 loan funds owner-occupied real estate and long-life equipment through a bank and a CDC, with a fixed rate on the CDC portion and lower SBA fees, while a 7(a) loan comes from one lender and can also cover working capital, refinancing and buying a business.
