SBA 504 Loans FAQ

Buying Commercial Real Estate?
Learn more about how financing works with SBA 504 Loans.

No.  It’s a very common misconception that the SBA is a commercial lender.  Going through the application process, borrowers are oriented towards SBA guidelines, rules, regulations in addition to the application process.  Nonetheless, the SBA, itself, does not lend money. Instead, the SBA creates and regulates a variety of small business lending programs that lenders and banking institutions participate in. 

The SBA does guarantee a portion of the loan, as does your lender.  

The 504 Loan Program provides small businesses with long-term, fixed-rate financing. Financing may be used to acquire fixed assets for expansion or modernization.  

504 loans are administered in partnership between the SBA and the Certified Development Company (CDC).

504 loans are made available through Certified Development Companies (CDCs), SBA’s community based partners for providing 504 Loans.  

A CDC is a nonprofit corporation that promotes economic development within its community through 504 Loans. CDCs are certified and regulated by the SBA, and work with SBA and participating lenders (typically banks) to provide financing to small businesses.

The SBA 504 Loan program offers small businesses numerous benefits for growth & expansion such as: 

  • 10% down-payment
  • 30 year loans
  • No balloon payments
  • Fixed interest rates

504 Loans are often structured as follows:

  • SBA provides 40% of the total project costs
  • Bank loans 50% of the total project costs
  • Borrower contributes 10% of the project costs. 


  • Buy existing commercial property
  • Purchase land and land improvements, including grading, street improvements, utilities, parking lots and landscaping.
  • Construct new facilities or modernizing, renovating or converting existing structures.
  • Buy machinery.
  • Refinance commercial debt in connection with business expansion.

Under the 504 Program, a business qualifies if it has a net worth that is less than$15 million, and an average net income that is less than $5 million after federal income taxes for the preceding two years prior to application.

Loans cannot be made to businesses engaged in nonprofit, passive or speculative activities.  

Contact our office to start your loan application process.  You can also download and complete the SBA Loan Application before meeting with our SBA Loan Brokers.

The SBA loan down payment is determined based on several factors but primarily on these 2 key factors:

  1. The cash flow of business & property
  2. The buyers credit score, liquidity and existing assets.

The typical down payment for an SBA 504 Loan is 10-15%. 

The financing structure for an average deal is:

  • 10-15% Borrower
  • 35-40% SBA portion
  • 50% conventional lender

For single purpose properties, such as gas stations or motels the minimum down payment is 15%. For start-ups, the down-payment is 20%.

This is mainly for Real Estate deals with business as ongoing concern. 

No. These loans are not available for business purchase without property.  Should you be interested in just purchasing a business, then the SBA 7a loan is the correct loan option to pursue. 

Here at Mission Peak Brokers, we generally use SBA 504 loans for Hotels, Motels, Gas stations, Owner-occupied office space and ground up construction for all these categories.

For new construction, the business must occupy 75% of the improvements.

For existing property, the business must occupy over 50%.

SBA 504 loans can be used for larger liquor stores and restaurant deals with real property.

When there are multiple partners and one partner has more assets and equity in their home than the other, an SBA 504 loan may be the best option.

Borrowers are typically concerned that the process will be long and difficult because they will need approval from the bank, CDC, and the SBA.

If you provide a complete financial package, however, the complexity and timing are no different than a conventional loan or a 7a loan.

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