SBA 504 Loan Terms: What to Expect

Looking for a commercial loan can be time-consuming and tedious. With so much information available online–much of it conflicting or outdated–the process of comparing loan packages can become something that takes you away from your most important job: running your small business. To save you time and energy, we have put together a concise description of the Small Business Administration (SBA) 504 loan program.

What Is a 504 Loan?

The 504 loan is one of several programs the SBA has implemented to encourage small business. You can secure financing up to $5.5 million at below-market rates with a 504 loan, coupling it with a low down payment and unlimited financing from a conventional lender.

With very few exceptions, most American businesses are eligible for a 504 loan. The requirements are:

  • The business must be a for-profit
  • The business’s tangible net worth cannot exceed $15 million
  • The business’s after-tax profit for the last two years cannot exceed $5 million

A 504 loan is extremely versatile and can be used across a wide spectrum of applications, such as:

  • purchasing land or buildings
  • constructing, upgrading or renovating buildings
  • purchasing equipment with a service life of ten years or more
  • refinancing conventional debt

504 Loan Conditions

A 504 loan has a structure unlike other loans, as it is a partnership between a non-profit Certified Development Company (CDC) such as TMC Financing, which administers the SBA portion of the loan, and a conventional lender such as a bank or credit union.

The conventional lender provides 50% or more of the total project cost on conditions established separately. There is no limit on the size of this loan. This  loan is the first mortgage on the property being financed. . TMC is happy to help borrowers find the best lender for their project if they do not already have a bank preference. .

A CDC facilitates the SBA loan for up to 35-40% of the project cost, or $5 million ($5.5 million for manufacturing projects or if the project is eligible for the Green Energy Program), at a fixed, below-market rate. The loan is fully amortized (that is, it has no balloon payment). There are 10-, 20-, and 25-year terms available. Fees total about 2.15% of the SBA loan amount and can be rolled over into the loan. The 504 loan is the second mortgage on the property being financed.

The borrower generally provides 10% of the project cost as a down payment. However, certain types of facilities are classified as single-purpose properties by the SBA and require a 15% down payment.

There is plenty of flexibility built into the 504 loan. Borrowers can secure more than one 504 loan as long as they do not exceed $5 million in total, for instance. (Manufacturing projects and projects that are part of the Green Energy Program have higher limits.) Prepayment of the 504 loan is allowed, with a gradually decreasing penalty in the first half of the loan’s life and no penalty for the second half of the loan’s life. The 504 loan is also assumable.

As a government program, the 504 loan has a number of community development and public policy goals, such as special benefits for veterans. There is also a job creation requirement, but if your CDC is a high-volume lender, it is possible for it to meet the requirement in its overall job creation statistics, allowing the borrower to qualify for their loan by meeting other goals. The loan experts at TMC will figure out what public policy goal your project fulfills.

The Green Energy Program

A popular option for meeting public policy goals is the Green Energy Program, which encourages conservation and, at the same time, helps business owners save money by increasing energy efficiency. Participants in the program are given some great motivation: they are eligible for funding up to $5.5 million per project and can exceed traditional project limits to receive up to $16.5 million from the SBA.

A project can qualify for the Green Energy Program in one of three ways:

  • Buy or construct a building that consumes 10% less energy than your current location
  • Make upgrades to the building you own to consume 10% less energy, or buy the building you now lease and do so
  • Buy or construct a building that produces 10% of the energy it consumes from renewable sources (such as solar, wind, geothermal, biomass and hydropower)or that produces fuel to reduce fossil fuel consumption, or buy equipment to do so at your current location

Applying for the 504 Loan

You can apply for the 504 loan after you arrange financing with a conventional lender, or you can start with your CDC. In either case, it is a good idea to prequalify for the 504 loan as early as possible. That way, you can find out ahead of time how much financing you can expect from the 504 loan and what kind of down payment you will need.

Only a few basic documents required to prequalify for the 504 loan, and you probably have the information at hand already. The documents needed are:

  • three years of personal and business tax returns
  • a personal financial statement
  • interim financials

When you have submitted your documents, arranged your conventional financing and signed the finalized application, your application is complete. Every loan is different, but the typical processing time for a 504 loan is around 60 days. This is comparable to the processing times of conventional lenders.

The 504 loan provides a unique financing opportunity. Its accessible financing with flexible and cost-effective options is designed to help your small business grow. You should consider it carefully when you are looking for a commercial loan.

You can find out more about the 504 loan from one of TMC Financing’s 504 loan experts. TMC is an SBA Premier Certified Lender and a high-volume loan provider. With over 35 years of experience, TMC can help you find the financing that is best for you and guide you through the 504 loan process. Contact TMC Financing today.


Barbara Morrison, a local small business advocate and civic leader, founded her first company TMC Financing in 1981. TMC is a Certified Development Company that provides commercial real estate financing to small business owners via the SBA 504 Loan Program. TMC consistently ranks among the top certified development companies nationwide, and has funded projects worth more than $9 billion across California and Nevada. Nearly 5,000 small businesses have benefitted from this financing, resulting in the creation of an estimated 50,000 jobs. TMC is also the No.1 SBA 504 hotel lender in the United States. Barbara is also the founder of Working Solutions, a Bay Area microlender whose mission is to provide micro entrepreneurs, particularly low-income individuals, women and minorities, with the access to capital and resources they need to start a successful business.
Barbara Morrison