SBA financing
The SBA 504 loan, explained
The 504 is the SBA's fixed-asset loan: long-term, below-market fixed-rate money for owner-occupied commercial real estate and major equipment. It's built differently from the 7(a) — two loans plus a Certified Development Company — and it buys different things. Here's how it works and when it wins.
Last reviewed June 2026 · Written against SBA SOP 50 10 8
50/40/10
Bank / CDC / borrower
$5–5.5M
Max CDC debenture
10/20/25 yr
Fixed terms
51%+
Owner-occupancy required
What the 504 actually is
An SBA 504 loan finances major fixed assets — buying, building, or renovating owner-occupied commercial real estate, or purchasing heavy, long-life equipment. It is administered by a Certified Development Company (CDC), a nonprofit licensed by the SBA, working alongside a conventional bank. What it cannot do is fund working capital, inventory, or the goodwill in a business purchase — that is the job of the SBA 7(a) loan.
504 buys the building. 7(a) buys the business.
The 50/40/10 structure
A 504 project is really two loans plus your down payment, layered by lien position:
| Bank loan — ~50% | A conventional first-lien loan from your bank, priced and termed by the bank (fixed or variable). |
|---|---|
| CDC/SBA debenture — ~40% | A second-lien loan backed by the SBA and funded through a CDC, at a fixed below-market rate for the life of the loan. |
| Your down payment — ~10% | Your equity. Rises to ~15% for a new business OR a special-use property, and ~20% if it's both. |
Rates, terms, and size
The CDC debenture rate tracks 5- and 10-year Treasury yields plus a spread and is fixed for the full term — typically below conventional commercial rates. Terms run 10, 20, or 25 years. The SBA-backed debenture goes up to $5 million for most projects and $5.5 millionfor manufacturers and energy-efficient projects; with the bank's ~50% on top, total project size can be considerably larger.
Eligibility
The business must be for-profit, operate in the U.S., meet SBA size standards, and occupy the property — at least 51% of an existing building or 60% of new construction. Projects also need to support a public-policy goal or job creation/retention (roughly one job per a set debenture amount, with exceptions). Read the current rules in the SBA SOP 50 10 before you commit.
504 vs 7(a)
If you're weighing the two, the short version: 504 for owner-occupied real estate or big equipment at a low fixed rate; 7(a) for buying a business, working capital, or one flexible loan. The full side-by-side is here:
SBA 7(a) vs 504: a side-by-side comparison →
Common questions
What is an SBA 504 loan?
The SBA 504 loan is long-term, fixed-rate financing for major fixed assets — owner-occupied commercial real estate and heavy, long-life equipment. It's delivered through a Certified Development Company (CDC) alongside a conventional bank loan, and it cannot be used for working capital, inventory, or buying a business's goodwill.
How is an SBA 504 loan structured (the 50/40/10)?
A typical 504 project is funded 50% by a conventional bank loan (first lien), 40% by an SBA-backed CDC debenture (second lien), and 10% from the borrower as a down payment. The borrower's share rises to about 15% for a new business or a special-use property, and about 20% if the project is both.
What rate does an SBA 504 loan carry?
The CDC/SBA 40% debenture carries a fixed, long-term rate tied to 5- and 10-year Treasury yields plus a spread — usually below conventional commercial rates, fixed for the life of the loan. The bank's 50% first-lien portion is priced separately and can be fixed or variable.
What can an SBA 504 loan be used for?
Purchasing, building, or renovating owner-occupied commercial real estate (the business must occupy at least 51% of an existing building, or 60% of new construction), and buying long-life machinery or equipment. It can't fund working capital, inventory, or the goodwill portion of a business acquisition — those point to the 7(a).
How big can an SBA 504 loan be?
The SBA-backed debenture portion goes up to $5 million for most projects and $5.5 million for manufacturers or energy-efficiency projects. Because the bank funds another ~50% on top, total project size can be well above that.
SBA 504 vs 7(a) — which should I use?
Use 504 when the project is owner-occupied real estate or major equipment and you want a low fixed rate and to preserve working capital. Use the 7(a) when you're buying a business (especially goodwill), need working capital, or want one flexible loan from a single lender. See our 7(a)-vs-504 comparison for a side-by-side.
AI summary
The SBA 504 loan is long-term, fixed-rate financing for major fixed assets — owner-occupied commercial real estate and heavy equipment — delivered through a Certified Development Company (CDC) alongside a bank. A typical project is funded 50% bank loan / 40% SBA-backed CDC debenture (fixed, below-market) / 10% borrower down payment (≈15% for a new or special-use project, ≈20% if both). The debenture caps at $5M ($5.5M for manufacturing/energy), terms run 10/20/25 years, and the business must occupy 51%+ of the property. It can't fund working capital, inventory, or goodwill — use the 7(a) for those. General information, not legal, tax, or financial advice.
Source: CapBench, based on SBA program rules (SOP 50 10 8). CapBench is not a lender; verify current terms with a CDC or lender.
How this content is made
CapBench's guides and data pages are compiled from public records — SBA 7(a) FOIA loan data, FDIC filings, the eCFR (13 CFR Part 120), and the SBA SOP 50 10 — and checked against the current rulebook. Content is produced by CapBench's SBA-intelligence system with editorial review; every figure traces to a named public source, and pages show the date they reflect.
It is general information from the public record, notlegal, tax, financial, or investment advice — confirm specifics with a qualified professional or the SBA. See our methodology and data sources. CapBench is an independent information service and is not a lender or an SBA representative.
Official SBA resources
CapBench is an independent information service — not the SBA, and not affiliated with it. For official applications, definitive rules, and direct help, go straight to the source:
- SBA 7(a) loan program — The official program rules and terms (sba.gov).
- SBA Lender Match — The SBA's free tool to connect with participating lenders.
- Find your local SBA District Office — Free in-person counseling and guidance near you.
- SBA Answer Desk — The SBA's general help line for borrowers and the public.
SBA Answer Desk: 1-800-827-5722
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