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When it comes to high-dollar projects, some small business owners throw up their hands. They give up hope on finding financing for the opportunities that could grow their business the most! However, we are here to tell you there ARE financing options out there for these more expensive, fixed assets

Today we will introduce you to SBA 504 loans. If you are looking for something you can pay off farther down the road while not having to worry about erratic interest rates, this could be the option for you. In this article, we will share with you what an SBA 504 loan is, and how you can get one!

SBA SMALL BUSINESS ADMINISTRATION sign emblem seal at headquarters building entrance

What is an SBA 504 Loan?

An SBA 504 loan is a loan program that provides commercial real estate financing for properties that help promote the growth of for-profit small businesses and job creation. This program is for those borrowers most interested in long-term financing and fixed interest rates

Certified Development Companies (CDCs) work with local lenders to fund and manage this financing program. These companies are nonprofit organizations that are certified and regulated by the U.S. Small Business Administration (SBA) to grow the economy of their community.

The CDC will process your application, coordinate the funding, and then submit your loan package to the SBA. The lenders, such as Coastal Kapital, are those banks and credit unions that have been approved by the SBA. Small businesses looking to borrow money for a fixed asset purchase simply need to contact their local lender to see how much they are eligible for.

The maximum loan amount is $5 million but certain companies can receive up to $5.5 million for approved energy projects (up to three projects). Where does the funding come from exactly? 

  • 50% comes from the private sector bank or credit union
  • 40% comes from the CDC and is backed by the SBA
  • 10% down payment must come from you, the borrower

The business assets being financed will be used as collateral for the loan, offered as a personal guarantee from you, the business owner. So if you are unable to pay off the loan, the asset you are trying to buy could be taken as payment instead. 


SBA 504 loans are used for fixed assets, meaning they are purchased for long-term use and cannot quickly be converted to cash. Additionally, these assets must be used to grow the business and create jobs. Uses for SBA 504 loans include the purchase, or construction of: 

  • Buildings
  • Land 
  • New facilities
  • Machinery
  • Equipment 

You can also get 504 financing for the improvement or modernization of: 

  • Land
  • Streets
  • Utilities 
  • Parking lots
  • Landscaping
  • Facilities

This means you can’t use this loan for buying new inventory or use it as working capital. You also can’t use it for consolidating, refinancing, or repaying your existing debt. Additionally, the loan is not to be used to speculate on real estate, or to use as a rental for real estate investing. The real estate must be owner-occupied. 


Are you curious if you would qualify? There are a few requirements that your business must meet to be eligible for the SBA 504 loan program: 

  • Be a for-profit company
  • Be located in the U.S. 
  • The company must have a tangible net worth of $15 million or less (Assets minus liabilities minus intangible assets)
  • Be earning less than $5 million annual average net income. This would be calculated after taxes and must be the case two years in a row before you apply for the loan
  • Meet SBA size guidelines
  • Have qualified management
  • Have a reasonably sound business plan 
  • Display good character
  • Prove your ability to pay back the loan
  • Owner occupancy 

Those businesses that would NOT qualify for SBA 504 funding would be those businesses that are nonprofit corporations or engage in passive or speculative investment purchases. If you aren’t sure whether or not your business meets the requirements, contact us at Coastal Kapital! 


Ask your lender about the loan terms before you sign the contract. Both the length of the loan and interest rates will vary. Depending on the loan, you may not have to completely repay the loan for 10, 20, or 25 years. Interest rates are tied to the five- and 10-year U.S.

Treasury notes. Typically interest will be about 3% of the financing amount. As we’ve mentioned, you will need to put 10% down at the beginning of the loan. This amount could be higher for startups or for the purchase of properties that only have one special purpose. 

Make sure to ask your lender how much the fees will be. SBA, CDC, and bank/credit unions will all have fees but these will vary. These fees are reflected in the total loan amount. That being said, fees will not go over 2.65% of the value of the loan. 

How to Get an SBA 504 Loan

Are you pretty sure you meet the eligibility requirements and are ready to obtain your SBA 504 loan? The application process for these loans is a little different than other SBA loan programs. This is because you must work with a CDC and a private lender rather than an SBA-backed lender. 

But, no worries! To get you prepared for the process, we will go over exactly how to obtain this funding. Let’s get started…


Instead of heading to your SBA-backed lender, you will first want to find a Certified Development Company. The CDC will be responsible for processing your application and facilitating the entire financing process. This CDC directory will show you the ones nearest you. Find the one closest to you that you would like to be involved in your SBA financing. 


Before getting knee-deep in the application process, make sure you qualify first. This is known as prequalification. This will give you an estimate of how much your business can receive through the SBA 504 loan program. Prequalification is free and will not take any hits to your credit from a formal credit inquiry. 

One advantage to pre qualifying is that it will give some credibility to your ability to obtain funding for a real estate property. This gives you a leg up on those competing buyers of the property you are interested in. To prequalify, bring copies of your last three tax returns (both personal and business federal income taxes), and any financial statements depicting both your personal and business financial situation. 


Did you find what you’d like to purchase? Whether it is equipment, an existing building, or a land purchase, you will then need to determine how much your business will need to borrow. If you are getting a construction loan, get contractor estimates that you can submit to your CDC.

Make sure all the soft costs are included! And If you are getting an equipment loan, make sure to get documentation of the total project cost. Also, remember that you are responsible for a 10% down payment to obtain SBA 504 funding. 


Next, you will want to submit your 504 loan application to the CDC that you’ve chosen. You can also download a ZIP file with all the loan documents you will need in the process. Make sure you have these documents ready to submit as part of your application: 

  • Business financial statements
  • Personal financial statements
  • Business tax returns from the last three years
  • Personal tax returns from the last three years
  • Accounts payable and receivable documents
  • Your business plan
  • Contractor estimates of other documentation of potential purchase cost


Once you’ve submitted your application and related documents, you must wait for loan approval. On average, SBA 504 loans take up to a week to come back with a decision. If they decide they want to move forward with the process, there is a three-week due diligence period.

Both the CDC and the lender may ask for other documents from you to give the final approval during the underwriting process. Make sure you submit the requested information within the due diligence period to avoid cancellation of the loan process. 


The whole SBA 504 loan process will take anywhere from one to two months on average. If you have a larger purchase or the transaction is more complex, this could extend for a longer period. During the process, you will specify how you want to receive the loan funds, then the disbursement will be given once the loan is officially closed.  


After closing, the borrower must comply with the following procedures:

  • Inform the SBA of any proposed changes in business ownership
  • Provide proof of tax payments
  • Provide proof of hazard insurance
  • Provide proof of key person insurance
  • Provide proof of financial responsibility
  • Inform the SBA if you want to get another loan with the same collateral

Senior caucasian man working at small business ecommerce with laptop

SBA 504 Loans Pros and Cons

Still not sure if an SBA 504 loan is for you? Let’s take a quick look at some pros and cons to assess if this loan is good for your small business. 


  • Low fixed interest rates
  • Promotes growth through the purchase of valuable assets like real estate, equipment, or expansion
  • Can fund up to 90% of the project you want to be financed
  • Flexible long-term repayment schedules
  • Fees will not go over 2.65% of the value of the loan


  • Difficult application process
  • Complex qualification requirements
  • Not available for all businesses
  • 504 loans are competitive
  • May be asked for more documents during the underwriting process
  • Lengthy loan process that can take 60 to 75 days (or more)

SBA 504 Alternatives

Have you decided the SBA 504 is not for you? Perhaps you need faster funding or your business doesn’t qualify. Not a problem, there are tons of other options available! Here are just a few other business financing opportunities: 

  • SBA Express loan: If you want to be approved quicker than the 504 loan process is capable of, consider applying for an SBA Express loan. You will not be able to borrow as much (only up to $500,000), but you will be out the door quicker. Here at Coastal Kapital, we can underwrite an SBA Express loan in less than two weeks!


  • A business line of credit: Another fast business loan, a line of credit works like a credit card. Your business will have access to a limited amount that you can withdraw from. Take what you need, and you will only have to pay the interest on the amount you’ve taken. We have a line of credit options available if you aren’t sure what amount you need, but will need it fast!


  • SBA 7(a) loan: Were you looking to get funding for working capital or purchase more inventory instead of real estate or improvements? If you severely lack cash flow, consider an SBA 7(a) loan, which is a loan capable of meeting these business needs. 


  • Equipment financing: Good, working equipment is imperative for business growth. If you don’t meet the requirements for the 504, but still need to purchase equipment, look into equipment financing. You can also use this type of loan to repair equipment you already have. 

Get Ready For a Game-Changer

So, what is an SBA 504 loan? It’s a long-term, fixed-rate financing option that you can use to purchase, construct, improve, or modernize commercial real estate or other business assets. This kind of loan can be a game-changer for your business. Think big. What kind of asset could maximize your company’s growth potential?

Could it be a new, better location for your restaurant? Modern equipment that will speed up manufacturing processes? Renovating your hair salon to make it more warm and inviting for customers? These things are all possible with an SBA 504 loan. Ready for this game-changer? Apply today to see if you qualify!

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