Project Eligibility

The SBA created the 504 loan to encourage economic development by helping businesses purchase owner-occupied commercial real estate and equipment. Here’s more information on the program and what borrowers and projects are eligible.

Eligible businesses

Most privately held companies are eligible. The business must be

  1. Small (less than $15 million in book net worth and less than $5 million in after-tax income on average for the last two years)
  2. A for-profit business

 

Eligible uses

  1. Acquisition or construction of owner-occupied commercial real estate, including:
    • Purchase of land or buildings
    • New construction
    • Renovation or expansion
    • Purchase of buildings on leased land
  2. Some soft costs, including:
    • Appraisals and environmental report costs
    • Title and recording taxes
    • Closing costs and bank points on bridge loans
    • Some professional fees (design costs, legal fees)
    • Minor amounts of FF&E
  3. Machinery and equipment with a minimum 10-year expected life (e.g., printing presses or manufacturing equipment), as a standalone project or in conjunction with a building project. Equipment with a 20-year useful life can be financed with a 20-year 504 provided the bank will commit to a minimum 10-year maturity.

 

Loan requirements

  1. Occupancy
    • For an existing building: The business must occupy at least 51% of the building.
    • For new construction: The business must immediately occupy at least 60% of the building.
    • An additional 20% must be expected to be occupied in 10 years.
    • 20% may be permanently leased out.
  2. Down payment
    • Down payment is typically 10%. See the About SBA 504 Loans page for more on the loan structure.
    • If the business has less than a two-year operating history or is changing management, it will be considered a start-up business and subject to a 15% down payment
    • If the building is considered “special use” (e.g., hotel, car wash, gas station) a 15% down payment is required.
    • If the business is a startup and the building being financed is a special asset, a 20% down payment is required.
  3. Project Size
    • Minimum project size is $100,000.
    • There is no maximum project size. The 504 loan is typically limited to $5 million, but the first lender can lend more than 50% of the project costs. Projects can be as large as $20 million.
    • For certain energy-efficient projects or for projects assisting small manufacturers, the SBA 504 loan limit is $5.5 million per project.