In short
- A 504 loan finances major fixed assets, such as buildings, land and long-life equipment. It cannot be used for working capital or inventory.
- It is usually a partnership: a senior lender, a Certified Development Company (CDC) with SBA backing, and your own cash contribution.
- The business generally has to occupy and use a set share of the property it finances, so it is not a route to buy a building purely to rent out.
- Expect weeks to months, extra paperwork and about 3% in program fees. Citizenship and residency rules for owners have been updated recently, so confirm them with a CDC.
The SBA 504 loan is one of the least understood business loans in the United States. Owners hear that it offers long, fixed-rate financing for buildings and equipment, then discover it involves two lenders, occupancy rules and a list of things it cannot pay for. This guide goes deeper on 504 than our comparison of SBA 7(a) vs 504, which is the better starting point if you are still deciding between the two programs.
This is general information, not legal, tax or financial advice. Program rules change, so we link to the official sources and you should confirm every detail with a Certified Development Company before relying on it.
What a 504 loan finances
According to the official SBA 504 page, the loan can be used for:
- Buying, constructing or renovating existing buildings or land
- Long-term machinery and equipment with a remaining useful life of at least 10 years
- Consolidating debt under the program's refinancing rules, or repaying or refinancing what the rules call "qualified debt"
The common thread is a fixed asset that will keep producing value for the business for many years: a workshop, a clinic building, a production line, a warehouse. Our guide on equipment financing vs leasing is a useful companion if the purchase is mostly machinery, because shorter-life equipment generally belongs in a different product.
What it cannot fund
The same SBA page lists three things that a 504 loan cannot be used for:
- Working capital or inventory
- Consolidating, repaying or refinancing debt that does not meet the program's "qualified debt" definition
- Speculation or investment in rental real estate
In practice this means a 504 project often needs a second source for the soft costs around it. If you need cash for payroll, stock or a seasonal gap while you move into a new building, you would look at working capital, a line of credit or a separate SBA 7(a) loan. If you are buying an existing company rather than property, read our guide on business acquisition financing.
The usual structure: three pieces
A 504 project is not a single loan. The SBA page says 504 loans are available exclusively through Certified Development Companies, which originate them in collaboration with a senior lender. In general terms the financing has three pieces:
- The senior lender makes a loan for part of the project, usually secured by a first lien on the asset.
- The CDC provides the second piece, a debenture backed by the SBA. This is the part that carries the long fixed rate and the 10-, 20- or 25-year maturity the SBA page describes, with interest pegged to an increment above the current market rate for 10-year US Treasury issues.
- You contribute cash or other equity of your own. SBA's lender page on 7(a) terms says that for 504 projects the borrower contributes at least 10% equity of the total project cost.
The SBA pages we read do not set out a standard percentage split between the senior lender and the CDC for a new project, so we will not guess at one. In the rules for refinancing a 504 project, the senior loan must be at least as large as the 504 loan and the 504 loan can be no more than 40% of the project. Treat that as a refinancing detail only. For a purchase or construction project, the CDC will show you the actual split for your deal.
The contribution can be higher than 10%. The refinancing rule says a borrower must put in at least 15% where the building is limited or single purpose. Other situations can also push the requirement up, which is one more reason to ask early.
An illustrative example
These numbers are for illustration only and are not a quote. Suppose a manufacturer is buying a building and some long-life equipment for a total project cost of $1,000,000.
- Minimum borrower contribution at 10%: $1,000,000 x 0.10 = $100,000
- Remaining $900,000 split between the senior lender and the CDC debenture in whatever proportion the program rules and your CDC set
- Program fees of approximately 3% of the debt, which the SBA page says may be financed with the loan. On $900,000 of debt that is roughly $27,000
The point of the example is the shape of the deal: a real cash contribution up front, two lenders, and a fee load you should price in before you commit.
Occupancy: the business has to use the property
504 is meant for businesses that operate in the space they are financing. The federal regulation on occupancy (13 CFR 120.131) sets these limits:
- Existing building (acquisition, renovation or reconstruction): the borrower may permanently lease up to 49% of the rentable property and must permanently occupy and use at least 51%.
- New construction: the borrower may permanently lease up to 20% and must permanently occupy and use at least 60%. It must plan to occupy some of the remaining unleased space within 3 years and all of it within 10 years.
The regulation also covers Eligible Passive Companies, where a property-holding entity leases 100% of the space to operating companies. In that case the operating companies must meet the same percentages. This is why a purchase of a building mainly to collect rent does not fit, and why the SBA page lists speculation or investment in rental real estate as a prohibited use. Many owners hold the building in a separate company from the operating business, which is the situation that rule is written for. A lawyer or the CDC can explain how it would apply to you.
Eligibility basics
The SBA page says the borrower must be an operating business that operates for profit, is located in the United States, meets SBA size requirements and is not an ineligible type of business. It also says applicants need qualified management expertise, a feasible business plan, good character and the ability to repay. You can check size standards for your industry on the SBA's size standards page.
The regulation on ineligible businesses (13 CFR 120.110) lists the exclusions. They include non-profits, businesses mainly engaged in lending, passive businesses that do not actively use the financed assets, businesses located in a foreign country, businesses earning more than one-third of gross annual revenue from legal gambling, and businesses with an associate who is incarcerated or under indictment for a felony or a financial-misconduct crime. Read the full list if your business is in an unusual sector.
The citizenship and residency question
Owners often ask whether they must be US citizens. We cannot give you a reliable answer from the pages we reviewed. The older text of 13 CFR 120.110 makes location the test and says businesses in the US owned by non-citizens may qualify, but the SBA's own 7(a) lender page lists training on "updates to citizenship and residency requirements" for 2026 and a 504 update on US citizenship, which tells us the rules have been changing. The authoritative source is SBA's Standard Operating Procedure for 7(a) and 504 lenders. Ask a CDC to confirm the current rule for every owner of the business, including indirect owners, before you spend money on an appraisal or application.
Costs and fees
The SBA page states that fees are approximately 3% of the debt and may be financed with the loan. It does not list every other cost, so budget for the usual extras that come with a real estate or equipment purchase: appraisal, environmental review for property, title and legal work, insurance, and any lender or CDC processing charges. Ask each party for a written fee list before you sign anything. Our guide on how to read a business loan offer shows how to compare total cost rather than just the rate.
Because the CDC portion has a fixed rate, your payment on that part will not move if market rates do. The senior loan is a separate contract with its own rate and terms, so read it separately.
Loan size
The SBA 504 page is not consistent on the ceiling. Its intro says "up to $5 million" while the body says the maximum loan amount is $5.5 million. The 7(a) lender page lists CDC/504 loans at $25,000 to $5.5 million. Treat the figures as a guide and ask the CDC what applies to your project, since limits can depend on the type of project.
Timing: plan in weeks to months
We have not found an official SBA timeline for 504, so we will not promise one. In practice a 504 project involves two lenders, an appraisal, often an environmental review, and sign-off from the SBA, so it is slower than a conventional term loan and much slower than short-term products. Our guide on how fast you can get business funding compares typical speeds. If you must close on a building by a fixed date, ask the CDC early whether the timeline is realistic and consider a backup plan.
How to find a CDC
- Use the SBA's list of Certified Development Companies, linked from the 504 loans page, and look for CDCs that serve your state.
- Contact your local SBA office if you want to confirm that a lender is qualified.
- Talk to two or three CDCs. They are community-based, so their experience with your type of project and property can differ.
- Ask each one which senior lenders they usually work with, or whether you should bring your own bank.
Documents to prepare
Expect to provide business and personal tax returns, financial statements, a business plan or project description, purchase contract or quotes, and information on every owner. Our guide on documents lenders need has a checklist, and how much your business can borrow explains how lenders judge repayment ability.
Is 504 the right fit?
504 tends to suit an established, profitable operating business that is buying or building its own premises or heavy equipment, has cash for the contribution, and can wait. It tends to fit poorly when the need is cash for operations, when the owner wants flexibility more than a long fixed rate, or when the building would mostly be rented to others. Industries that often buy premises or heavy equipment include manufacturing, auto repair and general contractors, and the broader overview is on our government-backed loans page.
Where celerfunding.com fits
celerfunding.com is a referral service, not a lender, and it is not part of the SBA. You can send us a request and we will tell you honestly whether we can introduce a suitable provider for this type of financing. We do not claim to have 504 lenders or CDCs in our network, and we cannot promise that a match exists for your project. If it does not, the CDC route above is the one to take directly. Lenders may pay us a fee if a business is funded; business owners pay us nothing. There are no guarantees about approval, rate or timing. You can send a request or look at your options side by side.