SBA 504 Loan Program: Benefits to the Small Business Owner

SBA Financing offers attractive alternative for business owners

Small businesses are the backbone of our economy, the drivers of a thriving community and the biggest job creators.  Recognizing that access to capital is a common source of struggle for many small businesses, the SBA (Small Business Administration) developed a loan program designed to benefit business owners, making access to capital more attainable. The SBA 504 Loan Program provides financing that allows small and medium sized businesses to invest in their facilities and expand their reach, giving them more stake in their community. The goal of the 504 program is to help small businesses create wealth and in turn, enhance the economic health of local communities.

The 504 loan features a low-down payment and below-market, long-term fixed interest rates.  This affordable financing option makes building ownership possible for many individuals lacking the capital to purchase real estate under conventional loan terms.

There are three participants in the 504 loan:

  • The borrower supplying the down payment
  • The bank supplying the first mortgage
  • The SBA/CDC (Certified Development Company) supplying the second mortgage

The borrower must contribute at least 10 percent down payment. The bank supplying the first mortgage lends 50 percent of the total project cost at their own terms. The remaining 40 percent of the project is covered by a CDC.  This 10-50-40 breakdown is the most common scenario, provided the CDC/SBA portion does not exceed $5 million, or $5.5 million for a manufacturing project or a project with energy efficiency upgrades. However, many other scenarios do exist. For example, a single use property requires a 15 percent down payment.

  • 50% Conventional lender
  • 40% CDC
  • 10% Borrower

Funds from a 504 loan can be used for the acquisition of real estate, land, and equipment and covers construction and renovation costs as well.  You can also use a 504 loan to refinance conventional loans.

Advantages of the 504 Loan

Low Down Payment

The low 10 percent down payment is one of the biggest attractions of the 504 program. Conventional loans often require a 20-40 percent down payment, an unattainable figure for many business owners.  With the 504 loan’s low injection, businesses retain precious working capital for operational costs. Renovations and soft costs can also be financed, allowing further cash savings.

Below Market, Fixed Interest Rates

Conventional loans typically come with variable and unpredictable interest rates. The interest rate on the SBA portion of the loan is below-market, long-term and fixed. The rate is unaffected by market instability or inflation expectations, which could cause a spike in monthly payments.  The 504 loan guarantees fixed, low monthly payments for the entire 25-year term, with no final balloon payment.

Stability & Equity

With rising rents and shrinking inventory, providing a stable and permanent operating location can be crucial to the survival of a business. Utilizing the 504 Loan Program to purchase real estate can provide a business owner stability in addition to accumulated equity. Traditional lenders and conventional financing often come with risky and unpredictable loan terms.  With the 504 program, business owners are able to pay for their facility over a long term and enjoy predictable monthly payments.  Every monthly payment is a contribution to your future! This will provide a nice nest egg for retirement when the time is right.

Rather than writing a monthly rent check to a landlord, why not invest in your future and write it to yourself?


The 504 program allows business owners flexibility when deciding how to hold title to their facility. Owners have the options of putting the title in their own name, in the name of the business or by a holding company for the real estate. This allows the business owner to maximize tax benefits of ownership and minimize liability in the manner best suited for them and their business.

Another element of flexibility is that the 504 loan is assumable. If an owner decides to sell their building, the buyer/new owner would gain the benefit of the below-market, fixed interest rate that came with the original loan. This is an excellent feature that will bring more opportunities to the seller of the building.

Support from a CDC (Certified Development Company)

A CDC is a nonprofit corporation built to support economic development within its community through the SBA 504 Loan Program. CDCs are regulated by the SBA and strive to be the borrower’s advocate throughout the life of the loan. CDCs complete the paperwork and guide the borrower through the entire loan process. It is important to choose a CDC with experience and expertise because, not only will they help you get the loan funded, but they will also be your partner for the next 10 or 20 years while servicing your loan.

Certain businesses such as startups or those within specialized industries, have difficulty securing a conventional loan. With a 504 loan, the partnership with a CDC lowers the bank risk and increases a business owner’s chances of securing a loan with them. CDCs have longstanding relationships with all types of lenders and can help find the best bank to accommodate the first mortgage.

A CDC is a great resource and source of advice for small business owners. To provide you with leverage when working on acquiring a building, a CDC can offer free consultations or a prequalification under no obligation or fee.  A prequalification letter can give you an advantage when shopping for a building to purchase.

Are you Eligible?

Truth is, most for-profit companies are eligible for the 504 Loan Program.  The biggest stipulation is that the purchaser must occupy at least 51 percent of the building. This requirement was implemented to ensure the integrity of the program –  to help small businesses, not large investment companies.

There are 270 CDCs nationwide – research the best CDC in your community and contact them to see if you are eligible for the 504 Loan Program.

About TMC Financing

TMC Financing is the number one CDC in Northern California and has ranked in the top five CDCs nationwide for two decades. During the past 35 years, TMC provided over $9 billion in financing for more than 5,000 businesses throughout California and Nevada. If you would like to learn more about the 504 loan, contact a TMC 504 loan expert 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