For small business owners looking to purchase or refinance their commercial real estate, the SBA 504 loan program offers some of the most attractive terms available anywhere in commercial lending. With below-market fixed rates, up to 90% financing, and 25-year terms, the 504 program is one of the best-kept secrets in CRE finance.

What Is an SBA 504 Loan?

The SBA 504 loan program is a federal program administered by the Small Business Administration that provides long-term, fixed-rate financing for major fixed assets — primarily commercial real estate and heavy equipment. The program is designed to promote economic development and job creation by making capital more accessible to small businesses.

How the 504 Structure Works

An SBA 504 loan is actually two loans working together:

  • First Mortgage (50%): A conventional loan from a bank or lending institution at market rates
  • CDC/SBA Loan (40%): A below-market fixed-rate loan from a Certified Development Company (CDC), backed by the SBA
  • Borrower Equity (10%): The borrower's down payment (15% for special-use properties or startups)

This structure means you only need 10% down — compared to 25-35% for a conventional commercial mortgage. The CDC portion carries a fixed rate for the full 25-year term, which is typically 100-200+ basis points below conventional rates.

What Can You Use a 504 Loan For?

  • Purchasing commercial real estate (office, retail, industrial, mixed-use)
  • Constructing new buildings or renovating existing ones
  • Purchasing heavy equipment or machinery
  • Refinancing existing commercial mortgages (with or without cash-out for eligible business expenses)
  • Land acquisition (if tied to building construction)

Eligibility Requirements

To qualify for an SBA 504 loan, your business must:

  • Be a for-profit company operating in the United States
  • Have a tangible net worth under $15 million
  • Have average net income under $5 million for the prior two years
  • Occupy at least 51% of the property (existing buildings) or 60% (new construction)
  • Create or retain jobs, or meet other public policy goals

Most small and mid-sized businesses that own or want to own their real estate qualify. The program is especially popular with medical practices, professional services firms, manufacturing companies, and owner-operated retail businesses.

Current SBA 504 Rates

As of early 2026, the effective rate on the CDC portion of a 504 loan is approximately 5.50%-6.25%, depending on the term and current debenture rates. When blended with the bank first mortgage, the overall effective rate is extremely competitive — often 50-100 basis points below a conventional commercial mortgage.

504 Loan Limits

  • Standard projects: CDC portion up to $5 million
  • Manufacturers: CDC portion up to $5.5 million
  • Energy-related projects: CDC portion up to $5.5 million per project

There is no maximum total project size — only the CDC portion is capped. We've structured 504 loans on projects ranging from $500,000 to $20+ million.

The Application Process

  1. Pre-qualification (1-2 weeks): We review your financials, business history, and property details to confirm eligibility and estimate terms.
  2. Application submission (2-3 weeks): Compile the full application package — business and personal financials, tax returns, property details, business plan.
  3. Bank approval (2-4 weeks): The conventional lender underwrites and approves the first mortgage.
  4. CDC/SBA approval (2-4 weeks): The CDC reviews the application and submits to SBA for authorization.
  5. Closing (2-4 weeks): Both loans close simultaneously. The CDC debenture is funded after closing through a monthly debenture sale.

Total timeline: 60-120 days from application to closing. The process requires patience and thorough documentation, but the savings over the life of the loan are substantial.

504 vs. Conventional: A Real Example

Consider a $2 million owner-occupied office building purchase:

Conventional: 75% LTV ($1.5M loan), 6.50% rate, 25-year amortization. Down payment: $500,000. Monthly payment: $10,120. Total interest over 10 years: ~$713,000.

SBA 504: 90% LTV ($1.0M bank + $800K CDC). Blended rate ~5.75%, 25-year amortization. Down payment: $200,000. Monthly payment: $9,750. Total interest over 10 years: ~$635,000.

The 504 loan saves $300,000 in down payment (preserving working capital) AND ~$78,000 in interest over 10 years. That's a compelling case for any business owner.

Is an SBA 504 Loan Right for You?

If you own a small to mid-sized business and either occupy or plan to occupy your commercial real estate, the 504 program should be your first consideration. The combination of low down payment, below-market rates, and long-term fixed rate is unmatched in commercial lending.

At CLS CRE, we work with CDCs and SBA-approved lenders nationwide to structure 504 loans for businesses across all industries. We handle the complexity of the dual-loan structure so you can focus on running your business.