# Can a 504 loan be used for working capital?

**Short answer:** No. A 504 loan pays for major fixed assets such as land, buildings and long-term machinery and equipment, not working capital or inventory. See 13 CFR 120.884(d) and sba.gov/loans/504-loans.

Canonical page: https://www.sbaexpress.loans/answers/can-a-504-loan-be-used-for-working-capital/
Last checked: 2026-11-08

No. 13 CFR 120.884(d)(1) lists working capital as an ineligible 504 cost. SBA's 504 page, read November 8, 2026, says a 504 loan cannot be used for working capital or inventory.

## Other costs excluded

13 CFR 120.884(d) also excludes counseling or management services fees, incorporation or organization costs, franchise fees and advertising. Any cost not directly attributable to or necessary for the project cannot be paid with 504 proceeds (SOP 50 10 8.1, Sec. C, Ch. 1, Para. C.16).

## Two narrow places cash can appear

- **Contingency refund.** A residual contingency of 2% or less of the debenture just before closing may be refunded as working capital when the debenture funds (Para. C.8.a).
- **Eligible Business Expenses.** A debt refinance without expansion can include certain operating expenses if project cash exceeds the payoff (13 CFR 120.882(g)(6)(ii); Para. C.10).

## Pairing with a 7(a) loan

A 7(a) loan can fund working capital alongside a 504 project. The SOP says the 7(a) loan should be processed and approved first because of statutory requirements (App. 16, Para. A). On size, a 7(a) balance up to the maximum loan limit does not reduce the amount available under the 504 program. SBA Policy Notice 5000-879058 sets that rule.

A business acquisition follows the same split. Receivables and goodwill must be financed by other means, which may include a 7(a) loan (Para. C.13.a).

## Sources

- [13 CFR § 120.884](https://www.ecfr.gov/current/title-13/section-120.884)
- [sba.gov/loans/504-loans, read November 8, 2026](https://www.sba.gov/loans/504-loans/)
- [SOP 50 10 8.1, Sec. C, Ch. 1, Paras. C.8, C.10, C.13 and C.16 (Para. C begins p. 226)](https://legacy.sba.gov/sites/default/files/2026-10/SOP%2050%2010%208.1%20Technical%20Policy%20Updates%20effective%20%2010.1.2026.docx)
- [13 CFR § 120.882](https://www.ecfr.gov/current/title-13/section-120.882)
- [SOP 50 10 8.1, App. 16, Para. A, General Requirements, Combination of 7(a) and 504 loans (p. 387)](https://legacy.sba.gov/sites/default/files/2026-10/SOP%2050%2010%208.1%20Technical%20Policy%20Updates%20effective%20%2010.1.2026.docx)
- [SBA Policy Notice 5000-879058, p. 1 (effective July 4, 2026)](https://legacy.sba.gov/document/policy-notice-5000-879058-coordination-7a-504-maximum-loan-limits)