The Small Business Administration offers many options when you need funding for your business ventures. An SBA loan offers greater flexibility than a traditional loan.

SBA 504 Loans

SBA 504 loans provide long-term financing for purchasing business equipment, real estate, machinery and other fixed assets. This type of loan is for promoting business growth and has specific purchasing requirements. You may use it to buy new equipment, a new building, upgrade facilities or improve parking lots. You cannot use an SBA 504 loan to purchase inventory, repay debts or supplement working capital.

The funding comes from the following three entities:

  • A credit union or bank
  • A certified development company
  • The borrower’s down payment, typically between 10% and 20%

The unique structure of this loan type involves the bank and CDC working together to issue your funds. Banks set their eligibility requirements and terms. The SBA regulates and supervises the CDC portion of the financing.


The development company processes your application, coordinates your financing and submits your loan package to the SBA. You need various documents to apply for this kind of SBA loan, including:

  • A business plan
  • Accounts receivable
  • Financial statements
  • Tax returns from the past three years
  • Cost analysis of the equipment you plan to purchase
  • Contractor estimates for construction funding


Businesses operating for profit in the United States can apply for a 504 loan if they have a net income average of less than $5 million for the previous two years. Your company cannot have a net worth of more than $15 million. You must not have any delinquencies and need strong personal credit to qualify. Your business also needs to meet the SBA definition of a small business.


One benefit of this kind of loan is the low interest rates. The SBA determines the standard, fixed rates for the CDC part of the loan, and the bank specifies the interest rate on their portion of the funding. The bank rates vary depending on the lender, but the CDC rates generally fall between 3% and 6%. These lower rates reduce the overall amount of interest you will pay.

An SBA loan helps you make progress toward your professional objectives. The low interest rates of a 504 loan make this a favorable option for many business funding needs. You will need to pay attention to the complex structure of the loan to ensure the best results.