SBA 504 Loan: What Is It and How Does It Work?
The U.S. Small Business Administration (SBA) offers multiple funding options for owners of small and medium businesses. If you need significant funding with long-term, fixed-rate financing, an SBA 504 loan may work for you. These types of loans are especially valuable if you plan to use the loan proceeds to finance major fixed assets that promote business growth or job creation.
This article covers what SBA 504 loans are, how they work, what you can and can’t use them for and how to apply.
SBA 504 loans at a glance
| What it is | An SBA 504 loan offers long-term, fixed-rate financing for major fixed assets that can promote job creation or business growth |
| Loan amounts | Up to $5.5 million |
| Interest rates | Interest rates are based on the current market rate for 10-year U.S. Treasury notes |
| Fees | Fees vary, but currently include the following for the 2026 fiscal year:
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| Down payment | Down payments as low as 10%, though lenders may require higher down payments depending on credit history, revenue history or project type |
| Collateral | Typically none required, as the special project funded acts as collateral |
| Requirements |
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| Funding speed | Funding time varies, but often takes 30 to 90 days, on average |
How SBA 504 loans work
SBA 504 loans are fixed-rate loans with repayment terms of 10, 20 or 25 years. Businesses use these loans to finance large purchases that facilitate job creation or business growth, such as expensive machinery or new buildings. The SBA guarantees these loans, and because they often finance large purchases that can serve as collateral themselves, you typically don’t need additional collateral.
What is the SBA 504 loan’s 50-40-10 structure?
Unlike other types of SBA loans, SBA 504 loans draw funding from three different parties:
- The borrower. You typically need to make a down payment of 10% to 20%, depending on factors like the loan balance, along with your time in business, revenue history and business credit score.
- Certified Development Companies (CDCs). These lenders typically provide 40% of the loan’s full balance, and the SBA guarantees this portion. You start the application process by applying to a participating CDC.
- A third-party lender. Often a bank or a credit union, this lender typically provides the remaining 40% to 50% of the funding.
These percentages can vary depending on factors like how long you’ve been in business and the type of project you’re financing, so confirm the details with the CDC before you apply.
Most SBA 504 loan limits fall at $5 million, though manufacturers and certain energy-efficient projects may qualify for SBA 504 loan maximums of as high as $5.5 million.
Should you take out an SBA 504 loan?
An SBA 504 loan may be a good fit if:
- You need financing for a major fixed asset, like real estate or equipment.
- You want a fixed interest rate and predictable payments over a long term.
- Your project will create or retain jobs.
Opt for other financing if:
- You need working capital, inventory financing or funds for another short-term purpose.
- You need funding quickly.
- You plan to lease out most of the property rather than occupying it yourself.
Requirements to get an SBA 504 loan
Before you decide if an SBA 504 loan is right for you, review the eligibility, down payment and approved usage requirements below.
To be eligible for an SBA 504 loan, you must meet the following criteria:
- Currently operate as a for-profit company in the United States or its possessions.
- Have an average net income of less than $5 million, after federal income taxes, for the two years before applying.
- Have a tangible net worth of less than $15 million.
- Plan to use the funding for approved purposes.
- Be able to meet the loan’s down payment requirements, which may range from 10% to 20%.
Approved uses for SBA 504 loans
You can use SBA 504 loans for a range of purposes that help create jobs or drive business expansion and growth. Common uses include:
- Construction or improvements on existing buildings or land
- Construction of new facilities
- Purchase of long-term machinery and equipment with a useful remaining life of at least 10 years (including AI-supported equipment related to the product or machinery for manufacturing products)
- Improving or modernizing land, streets, utilities, parking lots, landscaping and existing facilities
- Consolidating or refinancing certain existing debt tied to eligible fixed assets (under specific SBA conditions)
A few uses for an SBA 504 loan fall outside guidelines:
- Investment in rental real estate
- Financing of AI-related working capital, consulting services or intellectual property soft costs
- Working capital or inventory
- Refinancing debt that doesn’t meet the SBA’s qualifying conditions
Current SBA 504 loan rates and fees
Outside of the down payment, the cost of an SBA 504 loan comes down to two things: the interest rate and the program’s fees.
How SBA 504 loan rates work
Lenders don’t set interest rates on 504 loans. Instead, the SBA pegs the rate to the yield on U.S. Treasury notes, plus a fixed increment that covers underwriting and servicing costs.
The rate varies by term: 20- and 25-year loans price off the 10-year Treasury note, and 10-year loans price off the five-year Treasury note. That rate locks in once a month and stays fixed for the life of the loan. Your rate won’t change, even if market rates rise later.
Because the 504 rate ties to Treasury yields rather than a bank’s prime rate, it tends to be more competitive than the rates you’d get from most private lenders.
As of mid-2026, effective 504 rates range from 6% to 6.3%, though your exact rate depends on your loan term and the Treasury yield.
SBA 504 loan fees
Program fees increase your total borrowing cost, but you finance nearly all of them into the loan instead of paying them upfront. This works out to a slightly higher effective interest rate instead of a separate out-of-pocket cost.
For loans approved between October 1, 2025 and September 30, 2026, SBA 504 fees are:
| Loan category | Upfront guaranty fee | Annual service fee |
|---|---|---|
| Standard 504 loans | 0.50% | 0.209% |
| 504 Debt Refinance without Expansion | 0.50% | 0.2115% |
| Manufacturers (NAICS sectors 31-33) | Waived | Waived |
How long does it take to get the money?
One of the downsides of SBA loans is their slower funding timeline. SBA 504 loan timelines vary since the process depends on your CDC, third-party lender and the complexity of your project. In general, expect the process to take 30 to 90 days from application to funding, though it may take more or less time depending on your circumstances.
The process usually starts with your CDC and third-party lender underwriting their portion of the financing. Then your CDC submits the application to the SBA for final approval.
Several factors influence how quickly you receive funding:
- Processing times for individual lenders. CDCs are independent, community-based nonprofit organizations. Each sets its own application and approval processes, so some move faster than others.
- Whether your CDC has Premier Certified Lenders Program (PCLP) status. CDCs with the SBA preferred lender status can make credit decisions on the SBA’s behalf rather than waiting for a separate SBA review. This can speed up processing times.
- The underwriting process. If you provide everything your lender and CDC need upfront, you reduce the back-and-forth that can slow down the approval process.
How to apply for an SBA 504 loan
Applying for an SBA loan of any type requires that you first understand the qualification requirements. While the details of applying for an SBA 504 loan may vary slightly depending on the lender you use, this is the standard process you can expect:
- Find a Certified Development Company (CDC) in your area. You can search the SBA’s List of Certified Development Companies to find one near you.
- Review each lender’s eligibility requirements. Beyond the SBA’s 504 loan requirements, each lender may have its own additional criteria.
- Apply for the loan through your CDC. You’ll likely need to authorize the CDC to pull personal and business credit scores and provide profit and loss reports, proof of down payment, business tax returns and details about how you plan to use the loan funds.
- Complete SBA Form 1244. You and your CDC complete this application. Then your CDC uploads it to the SBA’s E-Tran system.
Frequently asked questions
The SBA doesn’t set an official minimum credit score for 504 loans. In practice, most CDCs and third-party lenders look for a personal credit score of 680 or higher, though they also consider your business cash flow and the project details in approval decisions.
A 7(a) loan comes from a single lender and covers a broad range of uses, including working capital, inventory and debt refinancing. A 505 loan splits funding between a CDC and a third-party lender and restricts use to major fixed assets like real estate and equipment.
Yes, if the brand qualifies under SBA guidelines and appears in the SBA Franchise Directory. You can’t use a 504 loan to cover franchise fees, but you can use loan funds toward the purchase of real estate, construction or equipment tied to your franchise location.
Yes, the rate on an SBA 504 loan locks in for the term of the loan, whether that’s 10, 20 or 25 years. It won’t change even if market rates rise later.
No. SBA 504 loans are for financing major fixed assets like real estate, renovations, machinery and equipment. If you need working capital or inventory financing, look into an SBA 7(a) loan or a business line of credit instead.
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