SBA 504 Loan, Explained: Buying Your Building or Major Equipment

Published 2026-11-08 · eLoanTree Blog

Most small business loans give you money and let you spend it on many different things. An SBA 504 loan is different. It exists for one job: helping a small business buy major fixed assets — mainly owner-occupied commercial real estate and long-life equipment. If you are renting a space you expect to stay in for years, or you need a machine that will last a decade, a 504 is one of the first programs to look at.

As with other SBA programs, the SBA does not lend the money directly. It guarantees a debenture — a kind of bond — that funds part of the loan. You work with two lenders, not one, and that is the part that confuses most first-time borrowers. Once you understand the three-part structure, the rest of the program makes much more sense.

1. The 50/40/10 structure

A standard 504 project is split into three pieces, often written as 50/40/10:

• 50% from a bank or credit union. A conventional lender provides the first mortgage, usually for half the project cost. This lender sets its own rate and terms, within SBA rules.
• 40% from a Certified Development Company (CDC). A CDC is a nonprofit organization certified by the SBA to handle 504 loans in a specific area. The CDC provides a second mortgage for about 40% of the project cost, funded by an SBA-guaranteed debenture. This is the part with the long-term fixed rate.
• 10% from you. The borrower puts in about 10% of the project cost as a down payment.

So on a $2 million building purchase, the split would typically be $1 million from the bank, $800,000 from the CDC, and $200,000 from you. That 10% down payment is one of the main reasons businesses choose a 504 over a conventional commercial mortgage, which often requires a larger down payment.

There are two important exceptions to the 10% rule. If your business is a startup with less than two years of history, or if the property is a special-purpose property — a hotel, a gas station, a car wash, or a similar single-use building — the required down payment is usually 15% instead of 10%.

If both apply, it can be 20%. These figures are the standard rules described in SBA guidance and lender guides published in 2026, and your CDC will confirm the exact figure for your project before you apply.

2. How big can a 504 loan be?

The CDC portion of a 504 loan — the SBA-backed part — has a maximum of $5 million for most projects, and $5.5 million for small manufacturers and certain energy-efficient projects (SBA, 504 program). The total project can be larger than that, because the bank's share and your down payment sit on top of the CDC portion.

There is also a combined limit that took effect July 4, 2026. A borrower can hold up to $5 million in 7(a) loans plus up to $5 million in 504 loans, for a combined total of $10 million (SBA Policy Notice 5000-879058, announced May 18, 2026). The per-program maximums did not change, and there is no single $10 million loan.

3. What can you buy with a 504?

The most common use is owner-occupied commercial real estate: buying the building your business already rents, buying land and building on it, or renovating a building you own. The rule is that your business must occupy the property. For an existing building, you generally must occupy at least 51% of it. For new construction, the occupancy requirement is higher, so check this with your CDC before you fall in love with a property.

The second use is long-life equipment — machinery, heavy equipment, and other fixed assets with a useful life of at least ten years. A 504 is not the right tool for short-lived equipment, inventory, or working capital. For those, a 7(a) loan or another product usually fits better.

4. Terms and the fixed rate

The CDC portion of a 504 loan carries a fixed interest rate for its full term. For real estate, the CDC term is typically 20 or 25 years; for equipment, it is usually 10 years. The bank's portion has its own rate and term, set by the bank. The fixed rate on the CDC share is the feature most borrowers care about, because it means that part of your monthly payment does not change for decades.

One timing detail is worth knowing. The CDC portion is funded by selling a debenture to investors, and those sales typically happen once a month. That means the CDC's share may not fund on the same day you close. An interim lender usually carries that share until the debenture sale, and the final rate on the CDC portion is set when the debenture is sold. Your CDC will explain this timeline, but do not be surprised if the funding happens in two steps.

5. Who qualifies?

A 504 borrower must be a for-profit small business operating in the United States. The SBA also applies a size test based on tangible net worth and average net income, which your CDC will check. As with the 7(a) program, the ownership rules changed in 2026: as of March 1, 2026, 100% of the direct and indirect owners must be U.S. citizens or U.S. nationals, and lawful permanent residents are excluded (SBA Policy Notice 5000-876441).

You will also need to show that the project creates or retains jobs, or meets another economic development goal the SBA recognizes. Your CDC handles that part of the analysis, and it is one of the reasons to talk to a CDC early, before you sign a purchase agreement.

6. The 504 timeline

A 504 loan takes longer than a simple bank loan, because two lenders and the SBA are involved. Lender guides published in 2026 typically describe 90 to 120 days from a completed application to funding for a 504, longer than the 60 to 90 days often quoted for a standard 7(a). The timeline stretches further when construction, an appraisal, or an environmental review is involved. Start early, and do not sign a purchase contract with a closing date you cannot move.

7. Is a 504 right for you?

A 504 fits when you are buying a building or major equipment you will use for a long time, you want a low down payment, and you want a fixed rate on a large part of the debt. It does not fit when you need money fast, when you need working capital, or when you do not want to occupy the property yourself.

If the building is right but the timing is wrong, a 7(a) loan or a conventional loan may be a better bridge — and your CDC or lender can help you compare them honestly before you commit.

Educational only — eLoanTree is not a lender or broker and does not make loan decisions, guarantee rates or approval, or collect documents or SSNs.