If you’re planning to buy commercial real estate, build a new facility, or purchase major equipment for your business, the SBA 504 loan is one of the best financing tools available. It offers low, fixed interest rates, long repayment terms, and high borrowing limits — all designed to help small businesses grow without draining their cash flow.
This guide breaks down everything you need to know about SBA 504 loans in 2025, including how they work, what you can use them for, eligibility requirements, and how to apply.
The SBA 504 loan program is a government-backed financing option designed to help small businesses purchase fixed assets — like real estate, buildings, and equipment — that support long-term growth.
Unlike traditional loans, 504 loans are a partnership between three parties:
A bank or private lender covers 50% of the project cost.
A Certified Development Company (CDC) covers 40%, backed by the SBA.
The borrower contributes 10% as a down payment.
This structure reduces risk for lenders, lowers borrowing costs for businesses, and makes financing large purchases more accessible.
SBA 504 loans are specifically intended for long-term investments. You can use them to:
Purchase commercial real estate (office, warehouse, retail, manufacturing, etc.)
Build new facilities or expand existing ones
Buy heavy machinery or manufacturing equipment
Improve or modernize existing buildings
Refinance certain qualified commercial real estate debt
Note: 504 loans cannot be used for working capital, inventory, or refinancing conventional debt unrelated to real estate or equipment.
Here’s an example of a $1 million project:
Bank: $500,000 (50%)
CDC/SBA: $400,000 (40%)
Borrower down payment: $100,000 (10%)
This means your business gets access to $1 million with just $100,000 out of pocket — and the majority of the financing comes with fixed interest rates and long terms.
Loan Amounts, Terms, and Rates
Loan size: Up to $5 million ($5.5 million for manufacturing or energy projects)
Interest rates: Fixed, typically 5.5% – 6.5% in 2025
Terms:
10, 20, or 25 years for real estate
10 years for equipment
Down payment: Usually 10%, but can be 15%–20% for startups or specialized projects
Because part of the loan is SBA-backed, rates are often lower than conventional loans — and terms are longer, which reduces monthly payments.
| Feature | SBA 504 Loan | SBA 7(a) Loan |
|---|---|---|
| Use of funds | Real estate, buildings, equipment | Working capital, equipment, real estate, debt |
| Loan size | Up to $5.5 million | Up to $5 million |
| Interest rates | Fixed | Fixed or variable |
| Down payment | 10%–20% | 10%–20% |
| Structure | Bank + CDC + Borrower | Lender + SBA guarantee |
| Best for | Fixed asset purchases | General business financing |
If you’re focused on buying property or major equipment, 504 is usually the smarter, lower-cost option. If you need flexible funding for other expenses, consider 7(a).
To qualify for an SBA 504 loan, your business must:
Be a for-profit U.S. business
Have a tangible net worth under $20 million and average net income under $6.5 million
Occupy at least 51% of the property for existing buildings (or 60% for new construction)
Demonstrate the ability to repay the loan through cash flow and business performance
Meet job creation or public policy goals, such as creating jobs or revitalizing a community
Identify a Certified Development Company (CDC) in your area
Work with a bank or lender for the 50% financing portion
Prepare financial statements, tax returns, and a business plan
Submit your SBA 504 loan application package
Close the loan and begin your project
Pros:
Low, fixed interest rates
Long repayment terms (up to 25 years)
Small down payment (as little as 10%)
Builds equity and long-term value
Ideal for real estate and large equipment purchases
Cons:
Limited use — can’t be used for working capital or inventory
Longer approval process (30–90 days)
Requires detailed documentation and strong financials
Strengthen your financials: Lenders want to see stable revenue, profitability, and cash flow.
Improve your credit score: Aim for 680+ for the best terms.
Offer a solid business plan: Show how the investment will support growth.
Work with an SBA-preferred lender: They have more experience and can speed up the process.
Be prepared for the appraisal: The property’s value plays a key role in approval.
Rates stabilizing: Interest rates are expected to remain steady or slightly decrease as inflation eases.
Increased demand: More businesses are using 504 loans to purchase property rather than lease.
Fee incentives: SBA is waiving or reducing some fees on smaller 504 loans, lowering total borrowing costs.
The SBA 504 loan is one of the most effective ways to finance major business investments. With low interest rates, long terms, and manageable down payments, it’s a strategic tool for purchasing real estate, expanding operations, or acquiring essential equipment.
If your goal is long-term growth and asset ownership, the 504 loan can help you get there — while preserving your working capital and strengthening your company’s financial future.