Guide

SBA 504 Loans: Financing Real Estate & Equipment

If you're buying commercial real estate or heavy equipment, the SBA 504 program can be a powerful financing tool — often with lower down payments than conventional loans.

PrepSBA Editorial Team

August 2026 · 6 min read

What Is an SBA 504 Loan?

The SBA 504 loan is a fixed-asset financing program. Unlike the flexible 7(a), the 504 is designed for specific long-term assets: commercial real estate (owner-occupied) and heavy equipment. It's funded through a structure involving a bank and a Certified Development Company (CDC).

How the 504 Structure Works

A typical 504 has three parts:

~50%: First mortgage from a traditional lender (bank)
~40%: SBA-guaranteed debenture through the CDC
~10%: Your down payment (equity injection)

Because you're only putting ~10% down (vs. 20%+ for many conventional commercial loans), the 504 preserves working capital — a major advantage.

Key Terms and Limits

Up to $5 million (potentially higher in qualifying cases)
Long terms — up to 25 years for real estate, 10–20 for equipment
Fixed-rate financing on the SBA portion — protection against rising rates
Must occupy the property as your business (owner-occupancy requirement)

504 vs. 7(a)

A common question is which to choose. The short answer: the 504 is for fixed assets; the 7(a) is for everything else (working capital, acquisition, flexible use). Some businesses use both. Compare Express vs. 7(a) and read the full 7(a) guide.

Frequently Asked Questions

What is the down payment for an SBA 504 loan?

The standard down payment is 10% of the project cost. It can drop to 5% for startups or businesses that occupy more than 60% of the property (under certain CDC criteria), and rise to 15% for non-owner-occupied or specialty properties. Most established owner-occupants should plan on 10%.

How much can you borrow with a 504 loan?

The SBA 504 program supports projects up to $5 million (and up to $5.5 million for small manufacturers or certain energy projects). The SBA-backed debenture portion is capped at 40% of the project, with the bank covering ~50% and your down payment the remaining ~10%.

What are the repayment terms on a 504 loan?

The SBA debenture portion offers terms up to 25 years for real estate and 10–20 years for equipment, with a fixed interest rate. The bank's first mortgage typically matches the same term. Fixed rates protect you from rising interest rates over the life of the loan.

Can I use a 504 loan to buy an existing building?

Yes. 504 funds can be used to purchase owner-occupied commercial real estate, including existing buildings, new construction, land improvements, and heavy equipment. The key requirement is owner-occupancy — your business must use at least 51% of the property (60% for new construction).

What credit score do you need for a 504 loan?

Most CDCs and participating banks look for a personal credit score of 680 or higher, though 640+ can work when the business cash flow and collateral are strong. Lenders weigh your debt service coverage ratio (DSCR), business financials, and owner experience alongside the score.

How is a 504 loan different from a 7(a) loan?

The 504 is a fixed-asset program for real estate and equipment with a 10% down payment and long fixed-rate terms. The 7(a) is the SBA's general-purpose loan for working capital, acquisitions, and flexible use. Many businesses use 504 for the building and 7(a) for working capital and improvements.

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