SBA 504

The Small Business Administration’s 504 Program was created in October of 1980 to provide financing for small business expansion. The SBA 504 Program provides funds for up to 40% of project costs for a term of up to twenty-five years at a below-market fixed rate.

The 504 program is earmarked for healthy, established businesses. It provides financing for land and building purchases, building construction, long-term leasehold improvements, and major equipment purchases. The program is designed for owner-occupied businesses; therefore, the small business must utilize the premises. The project must have a positive effect on employment and jobs must be created or retained because of the project unless a Public Policy Goal is met.

SBA Loans are one option that can help a small business owner who might be struggling to obtain financing. SBA loans are made through traditional banks, but the SBA guarantees repayment of a portion of the loan, which helps reduce the bank's risk. 

How does it work?

There are several different types of SBA loans including the SBA 504 loan, which is often used to finance commercial real estate. SBA 504 loans are available to for-profit small businesses for the acquisition and improvement of owner-occupied commercial property. They offer fixed-rate, long-term financing with 90% loan-to-value and a 10, 20, or 25 year amortization schedule.

With a 504 loan, the bank provides 50% of the financing, the SBA provides 40%, and the business owner puts in the remaining 10%. This financing structure can provide a huge cash flow advantage compared to a traditional commercial mortgage, which may require a down payment of 20% or more. See SBA's 504 Loan Program factsheet for more information.