SBA 504 Loan FAQs

If you are a business owner looking to expand, a Small Business Administration (SBA) loan could be the perfect solution. The loan program is a great option for affordable business funding.

At Business Funding Group (BFG), we help business owners like you secure financing so you can work towards achieving your business growth.

If you have questions, keep reading for answers to some SBA 504 loan FAQs.

What Is an SBA 504 Loan?

The SBA 504 loan is a government-backed program designed to help businesses grow in the U.S. These loans are structured with long-term fixed interest rates and low down payments, making them accessible for businesses that may not be able to secure traditional loans.

504 loans are offered through Certified Development Companies (CDCs), which are nonprofit organizations partnered with the SBA to support local economic development. These CDCs are certified and regulated by the SBA.

How Is an SBA 504 Loan Structured?

Part 1: Bank

Your financing is divided into two separate loans: one from the bank (the “A” piece) and one coming from SBA (the “B” piece). The A piece is a traditional, conventional owner-occupied loan with at least a 5-year fixed rate, 10-year term, and 25-year amortization. The A piece represents 50% of the total project.

Part 2: CDC / SBA

The B piece from the SBA gives you the option for a 20 or 25-year fixed rate, term, and amortization. This is one of the great values about this Program. You never have to worry about the rate increasing! The B piece represents 40% of the project.

Part 3: You, the borrower

As the business owner, you are required to contribute the remaining 10% of the project.

For example, if the building purchase price is $12,000,000, the loan structure would typically look like this:

1. Bank 1st mortgage – $6,000,000
2. CDC 2nd trust deed – $4,800,000
3. Borrower down payment – $1,200,000

What Are the Benefits of an SBA 504 Loan?

An SBA 504 loan has borrower-friendly terms and conditions compared to traditional bank loans.

• Low down-payment requirements: You only need to put down 10% of the total project cost (vs. 25%+ with conventional loans).
• Long repayment terms: Usually 25 years. Reducing the monthly payments and improving cash flow.
• Fixed interest rates
• Collateral: Only the building you are buying
• No balloon payments
• Borrow more than $20M

How Does the 504 Loan Differ From the 7(a) Loan Program?

SBA 504 loans are a great option for financing owner-occupied commercial real estate or large equipment purchases. They offer fixed interest rates, low down payments (typically 10%), and don’t require outside collateral.

SBA 7(a) loans are more flexible—you can use them for working capital, acquiring another business, or even buying owner-occupied real estate. But they usually come with variable rates, higher collateral requirements, and a borrowing cap of $5 million.

Who Is Eligible for a 504 Loan?

The most important factors in eligibility for a loan are (1) the business and its owners’ creditworthiness and (2) the ability to repay the loan.

The business must also:

• Be for-profit
• Operate in the U.S. and in an eligible industry
• Have an average net income of less than $6.5 million after federal income taxes for the two years preceding your application
• Have a tangible net worth of less than $20 million

Does a Business Owner Need To Have Good Credit for an SBA Loan?

Yes, a business owner must have a good credit score (700+ preferred). It is also important to have a good credit history.

What Can a 504 Loan Be Used For?

504 loans are used mostly for real estate purchases, but businesses can also use the money to purchase large equipment.

What Business Expenses Can a 504 Loan NOT Be Used For?

A 504 loan cannot be used for working capital, i.e. inventory, hiring, marketing etc. It is generally meant for major business assets.

Is There a Prepayment Penalty?

There is a declining prepayment penalty for the first ten years of the loan, based on the loan amount and funding rate.

How Do I Apply?

The application process involves gathering and submitting documents such as:

• Tax returns
• P&L statements
• Balance sheets
• Debt schedules
• Purchase contract
• And more

BFG helps with every aspect of the process, making it easy for business owners.

How Long Does It Take To Get Funded?

From the beginning of the application to a fully funded loan, it could take as little as a couple of months!

The biggest factor in the timeline is how quickly the business owner completes tasks and responds to communication.

Do I Have To Find a Lender on My Own?

BFG has a vast network of lenders with whom we have developed relationships. We connect lenders with applicants so you do not have to find a lender on your own.

Can I Apply for an SBA Loan if I Already Have Other SBA Loans?

Yes, as long as you are eligible and demonstrate the ability to pay for the additional debt. Having an existing SBA loan does not disqualify you from applying for and securing another SBA loan.

What Are the Benefits of Working With a Loan Packaging Firm?

When you work with a professional company like BFG, the process of getting a loan is as stress-free as possible. We understand all the SBA requirements and can help keep everything organized and on track. This can involve:

• Determining eligibility
• Advising about different loan programs
• Data collection
• Preparing the file
• Working with lenders to get you the best loan and terms possible

Call Business Funding Group for Help Getting an SBA 504 Loan

If this SBA 504 Loan FAQs page did not answer your question, give us a call, and we will be happy to discuss the loan program and how it could help your business. We are committed to helping businesses get the financing they need, and we have the knowledge and experience to do it.

Contact us today for a complementary discussion about your business goals, financial needs, and eligibility.