a small business owner standing in front of her shop Small business owners who are looking to make a large equipment or real estate purchase can find affordable financing options with SBA 504 loans.The Small Business Administration (SBA) offers a number of different loan programs. SBA 504 loans are unique given their eligibility requirements. However, assuming eligibility isn’t a concern, low rates make 504 loans an attractive option for small businesses.


What is the SBA 504 Loan Program?

SBA 504 loans are characterized by their unique structure, with partial funding (usually 50%) provided through a bank or credit union loan and the other portion (usually 40%) provided by a Certified Development Company (CDC). For reference, CDCs are local nonprofit lenders that promote economic development in their area. The SBA 504 loan program offers small businesses low interest rates, long terms for repayment and minimal down payment requirements. Additional characteristics of SBA 504 loans include:

  • Loan amount: $50,000 to $5 million, or a maximum loan amount of $5.5 million for certain exceptions. However, this cap is only on the CDC’s portion of the loan, which means that significantly larger projects can still be financed using a 504 loan.
  • Repayment terms: 10, 20 or 25 years
  • Interest rate: SBA 504 loan rates are fixed
  • Down payment: 10%, with some exceptions
  • SBA fee: fixed-percentage fee on loan amount
  • Collateral: the fixed assets being financed


What Can SBA 504 Loans be Used For?

SBA 504 loans can help a small business finance the purchase of fixed assets, mostly commercial real estate or equipment, that promote business growth and job creation. In addition, these loans can be used to construct a new facility or upgrade an existing one.

However, it should also be clear that SBA 504 loans are for owner-occupied commercial properties, not investment (i.e. rental) properties. SBA 504 Loan Rates As mentioned above, a large benefit of SBA 504 loans is the low rate. Plus, the rates are fixed for the life of the loan on the CDCs portion. This enables business owners to lock into a rate and have predictable payments over the course of their loan.Small business owners can check out current SBA 504 loan rates at any time before starting the application process.

SBA 504 Loan Requirements

Eligibility requirements for SBA 504 loans are universal. Regardless of the lender, the rules are the same. Some SBA 504 loan requirements include:

  • Meeting the definition of a small business, according to the SBA
  • Having no defaults on any government loans (including federal student loans)
  • Being a for-profit business operating in the U.S.
  • Having a tangible net worth less than $15 million, and having an average net income, after federal income taxes, of less than $5 million for the two-year period preceding a loan request
  • Occupying at least 51% of any property being acquired or 60% for new construction


Application Process for SBA 504 Loans

Small business owners who seek an SBA 504 loan will first need to identify a lender with whom they’d like to work. A CDC will be brought into the process and submit the loan application to the Small Business Association.

Small business owners will need to gather a number of crucial documents to be reviewed for an SBA 504 loan, including the following:

  • Three years of business and personal tax returns
  • Year-to-date financials (P&L and balance sheet)
  • Business debt schedule
  • Personal financial statements (PFS)
  • Additional documents for financing depending on the nature of the loan, including:
  • Contractor estimates for construction loans
  • Cost estimates for equipment loans
  • Purchase and sale agreement for acquisition loans

There may be additional documentation required depending on the lender and CDC with which the business is partnering. However, the above list is fairly comprehensive for what will be required to kick off the application process for an SBA 504 loan.About AVANA CUSO
Established in 1998 and headquartered in Simi Valley, CA, AVANA CUSO is one of the most seasoned credit union service organizations (CUSO) focused on commercial loans, including SBA 504 loans. We partner with credit unions and brokers to connect them to commercial investors across the United States. For decades, we have offered competitive and collaborative construction and commercial loans and uniquely support and guide our partners through the entire lifecycle of our loans. AVANA CUSO is a proud member of the AVANA Family of Companies.

Contact us today to learn more about becoming an AVANA CUSO partner.