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.
Most privately held companies are eligible. The business must be
- 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)
- A for-profit business
- 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
- 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
- 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.
- 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.
- 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.
- 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.