What is an SBA 504 loan?

Program Benefits

SBA 504 loans enable business owners to buy commercial real estate and other fixed assets at below-market, long-term, fixed interest rates. Fully amortized over 25 years, these payments carry no balloon payment.

You can also an SBA 504 loan to construct a new property, upgrade an existing building, purchase equipment (with 10+ yr. life expectancy), or convert facilities to energy-efficient facilities.

SBA 504 loans from TMC feature:

  • As low as 10% down, so you can keep your cash working to grow your business. Single-purpose facilities or start-up businesses require a minimum of 15% down
  • Below-market fixed interest rates with payments fully-amortized over 25 years, no balloon payment
  • No limit to the total project cost
  • No additional collateral required
  • Closing and other soft costs can be added to SBA 504 loans

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SBA 504 Loan Structure

The SBA 504 loan is a second mortgage loan backed by the SBA.

The 1st mortgage is provided by a conventional lender, representing approximately 50% of the total project cost.

The SBA 504 2nd mortgage, representing generally 40% of the total project cost, has a long-term, up to 25 years, and fixed interest rate, fully amortized for the full term of the loan.

Example Structure

Using a $5 million loan example, the financing structure would look like this:

  • Conventional loan (1st) - $2,500,000 - 50%
  • SBA 504 loan (2nd) - $2,000,000 - 40%
  • Borrower down payment - $500,000 - 10%


SBA 504 vs. 7(a) vs. Conventional

The SBA offers both the 504 and 7(a) loans, each valuable for their differences. The SBA 504 Loan is for the purchase of real estate and other fixed assets, and the 7a loan is more commonly used when working capital financing is needed. The 504 offers a low, fixed rate, while the 7(a) interest rate is variable and often unpredictable. The project maximum of a 7(a) loan is $5M and there is no project maximum with an SBA 504 Loan.

SBA 504 SBA 7(a) Conventional
Down Payment 10% minimum 10-15% minimum 25-40%
Interest Rates SBA second mortgage at below-market rates, fixed for 25 years Typically variable; tied to prime Varies by lender
Fees Included in SBA loan; approximately 2.15% Paid out-of-pocket; typically about 2.75% Paid out-of-pocket; approximately 1%
Project Size No maximum Maximum loan amount $5 million No maximum
Collateral No additional collateral required Additional collateral typically required for 90% financing Typically no additional collateral required
Prepayment Penalty Yes, for first 10 years, declining each year Yes, typically in first three years Varies by lender

TMC Financing offers exceptional experience and expertise. We’ve financed $10 billion in SBA projects—from $500,000 to $44 million in project values.