How does an SBA 504 loan work?
Short answer
A 504 loan splits a fixed-asset project among a third party lender, a Certified Development Company and you. The standard split is 50% third party lender, 40% CDC debenture, 10% borrower (SOP 50 10 8.1, Sec. C, Ch. 1, Para. B).
A 504 project has three sources of permanent money. SOP 50 10 8.1 sets the usual split at 50% third party lender, 40% CDC debenture, 10% borrower (Sec. C, Ch. 1, Para. B, p. 221).
Who provides what
- Third party lender. Usually a bank. It usually takes the first lien on the project property. SBA does not guarantee this loan (Para. E.2.a; 13 CFR § 120.920).
- Certified Development Company. It makes the 504 loan from debenture proceeds. SBA guarantees the debenture 100% (13 CFR § 120.801(d)). The 504 loan usually takes a second lien.
- You. You contribute at least 10% of the financing, 15% for a new business or limited or special purpose property, and 20% for both.
How the money moves
Most projects start with interim financing, often from the same bank (13 CFR § 120.801(b)). The interim lender carries the project until it is complete. The CDC then closes the 504 loan, and debenture proceeds repay the interim lender. Debentures are normally sold once a month (Sec. C, Ch. 3, Para. E, p. 285).
What it finances
The program funds major fixed assets such as land, buildings and long-term machinery and equipment, not working capitalMoney for day-to-day costs such as payroll, rent and inventory. Full definition or inventory. Source: sba.gov/loans/504-loans, read November 8, 2026.
What varies
SBA describes the 504 loan as fixed rate financing. The third party loan's rate and terms vary by lender, within SBA's rules (13 CFR § 120.921).
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