An SBA 504 loan is the program to look at when a business needs to own something large and long-lived — a building, land, or heavy machinery. It is deliberately narrower than 7(a), and the restrictions are what make it work. This guide is educational only.
What a 504 loan is
SBA describes 504 as "long-term, fixed-rate financing available through mission-oriented, community-based SBA Certified Development Companies." A Certified Development Company, or CDC, is a nonprofit certified by SBA to deliver the program in its region. A 504 project is typically structured across a lender, the CDC, and the borrower's own contribution rather than funded by one institution.
The phrase to notice is fixed-rate. A 504 loan is intended to finance an asset a business will hold for decades, at a payment that does not move.
How much you can borrow
The maximum loan amount for a 504 loan is $5.5 million.
What 504 proceeds can buy
- The purchase, construction, or renovation of existing buildings or land
- Long-term machinery and equipment with a useful remaining life of a minimum of 10 years
- Debt consolidation and refinancing, under specified conditions
That ten-year life test is the clearest signal of the program's intent. A machine that will still be productive in a decade fits. Equipment that will be obsolete in three years does not — for that, look at equipment financing or a term loan.
What 504 proceeds cannot buy
SBA is explicit that funds cannot be used for:
- Working capital or inventory
- Debt repayment that does not meet the definition of qualified debt
- Speculation or investment in rental real estate
This is the hard line between the two main SBA programs, and it is worth stating plainly: if you need money to make payroll, buy stock, or bridge a slow season, 504 is the wrong program no matter how attractive its rate looks.
Eligibility
A business must:
- Be an operating, for-profit business located in the U.S.
- Be small under SBA size requirements
- Show "qualified management expertise, a feasible business plan, good character and the ability to repay the loan"
- Not be engaged in nonprofit, passive, or speculative activities
The bar on passive and speculative activity is the same idea as the rental-real-estate exclusion. The program finances premises a business operates from and equipment it runs — not property held as an investment.
Where to start
Because 504 runs through CDCs, the first call is usually to the CDC covering your area rather than to a bank. SBA's Lender Match tool exists to connect businesses with approved lenders.
Rates, fees, contribution requirements, and the qualified-debt rules change. Confirm current terms with the CDC and with SBA.
Compare your options
Browse finance companies and compare advertised offers, then confirm rates, fees, and terms with the company before you apply.
Frequently asked questions
What is the maximum SBA 504 loan amount?
SBA states the maximum 504 loan amount is $5.5 million. What a business is offered depends on the project and on underwriting by the CDC and the participating lender.
Can an SBA 504 loan be used for working capital?
No. SBA states 504 funds cannot be used for working capital or inventory. A business needing working capital should look at the 7(a) program, which lists it as an eligible use, or at a line of credit.
What is a CDC in a 504 loan?
A Certified Development Company is a mission-oriented, community-based nonprofit certified by SBA to deliver the 504 program in its region. A 504 project is arranged across the CDC, a participating lender, and the borrower's own contribution.
Can I buy rental property with a 504 loan?
No. SBA excludes speculation and investment in rental real estate. The program finances premises a business operates from, not property acquired to let out as an investment.
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