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SBA 504 loan 504
Also called CDC/504 loan, 504 program, sba 504 loan.
A three-part structure for owner-occupied real estate and long-life equipment: a bank first mortgage, a fixed-rate debenture through a Certified Development Company, and a borrower cash injection.
Drafted with AI assistance. Not yet independently checked. Nobody has verified the claims on this page against a source, so treat the figures and legal points as a starting point rather than as settled, and confirm anything you are about to act on. How we check things.
What it means
The typical split is roughly half from a conventional lender in first lien position, around forty percent through a Certified Development Company funded by an SBA-guaranteed debenture in second position, and about ten percent from the borrower. The borrower injection rises where the property is special-purpose, where the business is new, or both. The CDC piece prices as a fixed rate at the time the debenture is sold, which is the programme's main attraction — long fixed-rate money on real estate.
What it can and cannot fund
Proceeds go to fixed assets: land, buildings, improvements, and machinery with a long useful life. It is not a working-capital programme. Owner-occupancy rules apply — an existing building generally requires the business to occupy a majority of it, a new build a higher share — so it does not finance investment property.
The programme also carries a public-policy or job-creation requirement measured against the debenture amount. A CDC will discuss this early because a project that cannot meet it under any of the alternative public-policy goals is not a 504 project.
Two closings, two sets of documents, two lenders with their own conditions, and an interim period where the bank often bridges the CDC portion until the debenture funds. It takes longer than a 7(a) and involves more parties.
Where this one catches people
The "ten percent down" figure is quoted as if it were universal. It is the base case. A single-purpose property such as a car wash, a hotel or a gas station, or a business under two years old, pushes the injection higher — and both conditions together push it higher again. Buyers budget the base case, then find the gap weeks before closing.
Worked through
Illustrative only. A $2,000,000 owner-occupied building under the base structure: roughly $1,000,000 bank first mortgage, roughly $800,000 CDC debenture in second position, roughly $200,000 borrower injection. Change the property to special-purpose and add a startup operating company and the injection requirement rises, with the CDC or bank share shrinking to match.
Figures in the example are illustrative. They show the arithmetic, not a quote — what any one lender would charge is on that lender's page, where it is published at all.
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SBA 504 loan — common questions
What does sba 504 loan mean?
A three-part structure for owner-occupied real estate and long-life equipment: a bank first mortgage, a fixed-rate debenture through a Certified Development Company, and a borrower cash injection.
Where does sba 504 loan catch people out?
The "ten percent down" figure is quoted as if it were universal. It is the base case. A single-purpose property such as a car wash, a hotel or a gas station, or a business under two years old, pushes the injection higher — and both conditions together push it higher again. Buyers budget the base case, then find the gap weeks before closing.
Is sba 504 loan the same as an interest rate?
SBA 504 loan is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.
Which products does sba 504 loan apply to?
SBA Loan, Equipment Financing.
Is there a worked example of sba 504 loan?
Yes, on this page, and it is labelled illustrative. It shows the arithmetic, not a quote from any lender.
What else should I read alongside sba 504 loan?
Equipment financing, SBA 7(a) loan, Second position, Senior lien, Small Business Administration.
Has this definition been checked?
Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.
Is this legal advice?
No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.
Can I suggest a term?
Yes — [email protected]. The glossary grows from what people are actually shown in contracts.