How much is the down payment on an SBA 504 loan?

In this answer, CDC means Certified Development Company.

The borrower contributes at least 10% of the financing, 15% for a new business or limited or special purpose property, and 20% for both. That comes from 13 CFR § 120.910 and SOP 50 10 8.1, Sec. C, Ch. 1, Para. B (p. 221). The percentage is of project cost, excluding administrative costs.

The SOP shows three typical structures:

• Standard: 50% third party lender, 40% CDC debenture, 10% borrower.
• New business, or limited or special purpose property: 50% third party lender, 35% CDC debenture, 15% borrower.
• Both: 50% third party lender, 30% CDC debenture, 20% borrower.

Under § 120.910, a new business is one that has operated for two years or less. SBA's examples of limited or special purpose property include hotels, gas stations, car washes and wineries (Sec. C, Ch. 1, Para. E).

What can be contributed

• Cash, or property acceptable to SBA obtained with the cash
• Land already owned that is part of the project, including buildings on it (13 CFR § 120.911)
• Borrowed funds, if subordinate to the third party loan and the 504 debenture

Rules for borrowed contributions

A borrowed contribution secured by project assets must be subordinate to the 504 lien. It cannot be repaid faster than the 504 loan unless SBA approves in writing. A third party lender may not receive voting rights or stock options (13 CFR § 120.912). The contribution cannot come from an SBA business loan program (13 CFR § 120.910(b)).

Seller financing

Financing from the seller of the project property must be subordinate to the 504 loan, with a narrow exception (13 CFR § 120.923). An appraisal is required when a seller carryback is part of the contribution (Sec. C, Ch. 1, Para. E.2.b).