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NGExpert financial copywriter
The U.S. Small Business Administration (SBA) offers a variety of federally-guaranteed small business loans, including the popular SBA Certified Development Company (CDC)/504 loan.
The goal of the SBA 504 loan program is to “finance major fixed assets that promote business growth and job creation” through long-term, fixed rate loans. Learn more about the SBA 504 loan program, how to qualify and how to apply.
Page written by Kat Cox. Last reviewed on April 26, 2024. Next review due October 1, 2025.
The SBA Certified Development Company (CDC) loan program, also called the SBA 504 loan program, was started as a way to help small businesses that may not qualify for traditional financing to get funding for major capital projects. It’s intended for small businesses to use to buy real estate, remodel or improve existing real estate or buy equipment, in order to promote job creation and small business growth.
The SBA doesn’t issue loans itself – instead, it works with approved financial institutions like banks or credit unions, certified CDCs (in the case of 504 loans), and other approved lenders to make a financing package for the borrower.
To work out how much your loan could cost, use our simple SBA 504 loan calculator below to calculate the total interest and total cost of finance for your loan.
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This calculator is intended for illustration purposes only and exact payment terms should be agreed with a lender before taking out a loan.
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The CDC handles application processing and contributes 40% of funding for a 504 loan, which is guaranteed by the SBA. This means if the loan defaults, the federal government is on the hook for paying it back. The rest of the loan is financed by a bank or credit union, except for 10%, which the borrower puts as a down payment.
You can qualify for up to $5 million (or $5.5 million if you own a manufacturing business) with an SBA 504 loan with a relatively low-interest rate. The SBA also approves up to three projects for certain energy companies for up to $16.5 million total across all three projects. This makes these loans enticing for companies that want to do a lot of construction, development or equipment purchasing.
Because they’re backed by the federal government, have low interest rates and offer large funding amounts, SBA 504 loans are really popular. However, they can be difficult to qualify for. Also, they may take longer to fund than other loans and they may have complicated application processes.
The Small Business Administration typically doesn’t set the exact loan rates for any SBA loans, although they can put a limit on the interest rates. The rates are usually set by individual lenders and will depend on the borrower’s qualifications (the better your credit score, the better the rates available to you).
In the case of the SBA 504 loan, rates are tied to an increment (about 3%) above the 5- and 10-year U.S. Treasury rates. Because the market fluctuates, this rate can go up or down, so it’s important to check with your CDC and the SBA on what the rate will be for your loan.
In addition to the 10% down payment, borrowers are expected to pay certain fees, which will be included in the funding amount. Some of these fees include:
SBA 504 loan repayment terms are relatively good for business loans. You can get:
In order to qualify for an SBA 504 loan, your business must:
Non-profit organizations and passive or speculative companies can’t qualify for SBA 504 loans.
Although you can get a large amount of money with an SBA 504 loan, the funds have to be used in very specific ways. Specifically, you have to purchase, repair, or maintain certain assets that “promote business growth and job creation”. These assets include:
You can’t use a 504 loan for inventory, speculation on property or on other existing debts. You also can’t use the loan amount for working capital or operating expenses.
If you meet the above basic qualifications for an SBA 504 loan, the next step is to apply for the loan. Unlike other term loans, it’s not necessarily a straightforward process.
The lender may have other requirements to prequalify you, such as other documents, so always check with them to make sure you’re not missing anything.
There may be other requirements depending on the project and the lender.
You should know the SBA’s decision on your loan within a week, but it may take longer. After that, it will take about three weeks for them to complete their due diligence requirements. They may ask for more documentation during this time period, so be prepared to provide the details quickly in order to keep the process moving and avoid further delays.
After you’re approved, it may still take up to two months or more for you to receive funding. You’ll also need to ensure you comply with post-closing restrictions, like notifying the SBA of any changes to your project and keeping up with insurance requirements.
Because they can be difficult to qualify for if you don’t have the right credit scores or time in business and because they take a long time to fund, the SBA 504 loan program may not be right for everyone.
Other financing options you may consider include:
In order to find the right business financing for you, you need to know how much money you need, what you need it for and what your qualifications are. You should also take into account how quickly you need the money and how much collateral or down payment you need.
Swoop can help you find the right SBA loan for your small business. Register on the Swoop app today and explore potential funding options.
Written by
As a B2B finance content specialist, Kat Cox's goal is to distill complicated financial issues into useful information for small business owners, to save them time they could be using to build their companies. Her work has been featured in Forbes and on financial health platform Nav.com. When she's not writing blogs, web copy, or fiction, Kat can be found walking her dog or singing karaoke in Austin, Texas.
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