What Is An SBA 504 Loan?

An SBA 504 loan is designed to help small and mid-size businesses buy commercial property. It was designed for business owners who do not have the funds to make 20% down payment required for the building purchase.

SBA 504 Loan Structure

504 loans are structured along the following parameters:

  • The SBA 504 loan is split into a conventional mortgage, which covers 50% of the purchase price, a government-backed equity issued by SBA, which covers 40% of the purchase price and the borrower's equity, which covers the rest.

  • The SBA 504 loan is locked for 20 years with the bank

  • SBA 504 loans have caps that vary depending on the type of the borrowers' businesses.
  • $2 million for public policy projects
  • $4 million for small manufacturers
  • $1.5 million for other businesses

SBA 504 Loan Requirements

Businesses that wish to apply for SBA 504 must meet the following requirements:

  • The borrowers must be either citizens or permanent residents of United States

  • The company's net average income for two years prior to the application must not exceed $2.5 million.

  • The company's net worth must not exceed $7.5 million

  • Over the half of the property must be occupied by borrowers by within a year of ownership.