# 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).

Canonical page: https://www.sbaexpress.loans/answers/sba-504-loan-how-it-works/
Last checked: 2026-11-08

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 capital 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).

## Sources

- [SOP 50 10 8.1, Sec. C, Ch. 1, Para. B (p. 221)](https://legacy.sba.gov/sites/default/files/2026-10/SOP%2050%2010%208.1%20Technical%20Policy%20Updates%20effective%20%2010.1.2026.docx)
- [SOP 50 10 8.1, Sec. C, Ch. 1, Para. E.2.a (Para. E begins p. 242)](https://legacy.sba.gov/sites/default/files/2026-10/SOP%2050%2010%208.1%20Technical%20Policy%20Updates%20effective%20%2010.1.2026.docx)
- [SOP 50 10 8.1, Sec. C, Ch. 3, Para. E (p. 285)](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 § 120.801](https://www.ecfr.gov/current/title-13/section-120.801)
- [13 CFR § 120.920](https://www.ecfr.gov/current/title-13/section-120.920)
- [13 CFR § 120.921](https://www.ecfr.gov/current/title-13/section-120.921)
- [sba.gov/loans/504-loans (read November 8, 2026)](https://www.sba.gov/loans/504-loans/)