An SBA 504 loan, also known as a CDC loan, provides long-term financing for small business owners. It gives small business owners the money they need to buy capital assets which they can then use to create jobs and meet other economic development objectives for their communities.
Through this program, the SBA partners with local nonprofits called Certified Development Companies (CDCs.) The CDCs provide money along with banks to fund these loans. The financing split usually works out where the CDC funds up to 40% of the loan, a third-party private lender funds 50%, and the borrower must put up a minimum of 10% as an SBA 504 loan down payment.
SBA 504 loans make sense if you’re looking to borrow at least five figures to invest in capital assets that qualify: commercial real estate, land, equipment, etc. Between the high maximum loan limit ($5 million), long payment terms (up to 20 years), and competitive interest rates, SBA 504 loans can offer many advantages.
In exchange though, it can be harder to qualify for 504 loans. You need to provide more documents and be in stronger shape financially compared with what’s required for some of the other SBA loan programs. In addition, the approval process can take longer relative to other SBA programs.
If you’re looking for a smaller amount of money, you might get a decision more quickly through SBA Express loans. In addition, if you’d like to borrow for other uses like working capital or buying inventory, the SBA 7(a) loan program gives you more flexibility on how you can spend the money.
If an SBA 504 loan sounds like a fit for your needs, click here to be put in-touch with local loan experts who can help you learn more.
If you’d like to apply for a 504 loan, you first need to identify a qualified CDC that serves your area. The lender (not the SBA) handles the application. You can search for one using the SBA website. Once you find a CDC, you can review their specific application process and the documents you’ll need to submit.
Expect to provide:
The CDC and the third-party lender could ask for additional documentation. 504 SBA loans have a long approval process. It typically takes two to three months to get a decision and could potentially take even longer. This is why they are not used for short-term, working capital needs.
.png)
Through SBA CDC/504 loans, you can potentially borrow up to $5 million. There are some special situations when you can borrow up to $5.5 million, like for small business manufacturers and certain green energy projects. While there is technically no minimum loan size for the SBA 504 loan program, it’s mostly used for larger amounts, at least five figures.
The SBA 504 loan program offers terms of 10, 20 or 25 years to pay the money back. You can use 504 loans to buy land, commercial real estate, equipment, and machinery. You can also use them as construction loans, both to build new facilities and to upgrade those you already own.
You could also use this program to refinance debt used to purchase qualifying assets, provided you took out the other loan no more than two years before your SBA application.
The SBA spells out a few situations that are not appropriate for 504 loans. You cannot use SBA 504 loans to:
