An SBA 504 loan finances major fixed assets — owner-occupied commercial real estate and long-term equipment — through a three-part structure: a bank or lender funds about 50%, a Certified Development Company (CDC) funds about 40% through an SBA-backed debenture at a long-term fixed rate, and you contribute about 10%. It is built for buying, building, or renovating property your business occupies, not for working capital or inventory. As of July 2026, effective 504 rates run about 6.2%, fixed for the life of the loan.
What an SBA 504 Loan Can and Can’t Fund
The 504 program is deliberately narrow. It exists to finance long-lived fixed assets, which is why it can offer 10-, 20-, and 25-year fixed rates that other business loans can’t match.
A 504 loan can fund:
- Purchasing, constructing, or improving owner-occupied commercial real estate
- Long-term machinery and equipment (generally a useful life of 10 years or more)
- Refinancing qualifying fixed-asset debt under specific conditions
A 504 loan cannot fund: working capital, inventory, or rental, investment, or speculative real estate. If you need flexible operating capital, that is a job for a 7(a) loan or a line of credit, not a 504.
How the 504 Structure Works: The 50/40/10 Split
A 504 loan is really two loans plus your equity. A conventional lender takes the first-lien position for about half the project, the CDC funds a second piece through an SBA-guaranteed debenture, and you inject the rest as a down payment.
| Piece | Share | Details |
|---|---|---|
| Third-party lender (bank) | ~50% | First-lien loan; rate and term set by the lender |
| CDC / SBA debenture | ~40% | Second lien; long-term fixed rate; this is the SBA-backed portion |
| Borrower equity | ~10% | Your down payment (higher in the cases below) |
Two situations raise the equity you have to put in:
- A new business (operating under two years) or a special-purpose property (limited-market, unique-design real estate such as a hotel or gas station): your equity rises to about 15%, and the CDC portion drops accordingly (a “50/35/15” split).
- Both at once — a new business buying a special-purpose property: your equity rises to about 20% (a “50/30/20” split).
SBA 504 Loan Amounts, Terms, and Rates
Loan size. The SBA-backed debenture maxes out at $5 million for most projects, or $5.5 million for small manufacturers and certain energy-related projects. Because the bank’s roughly 50% share isn’t capped by the SBA, total project financing routinely runs well above the debenture ceiling. As of July 4, 2026, a borrower can also combine up to $5 million of 504 financing with up to $5 million of 7(a) financing under a new $10 million cumulative cap.
Terms. The CDC/debenture portion comes in 10-, 20-, or 25-year fully amortizing fixed terms. The rate is pegged to an increment above U.S. Treasury yields (the 10-year Treasury for 20- and 25-year debentures, the 5-year for the 10-year debenture) and is fixed for the entire life of the loan.
Rates. As of July 2026, effective all-in 504 rates are approximately 6.17%–6.20% across the standard 20- and 25-year terms. New-loan rates reset monthly with each debenture sale, so the exact figure moves month to month — but once your loan closes, that rate is locked for its full term.
Fees. One-time fees total roughly 2.5%–3% of the debenture and are financed into the loan rather than paid out of pocket. For fiscal year 2026, small manufacturers pay 0% on both the upfront and ongoing SBA fees.
Who Qualifies for a 504 Loan
The core requirements are straightforward, with one eligibility path most borrowers don’t know about:
- For-profit and U.S.-based. The program is for operating, for-profit businesses in the United States.
- Owner-occupied. Your business must occupy the majority of any real estate the 504 loan finances — 504 does not fund property you intend to rent out or hold as an investment.
- Size. You qualify if your business is “small” under the SBA size standard for its industry. If it isn’t, there’s an alternative: a business also qualifies if it has a tangible net worth of $20 million or less and average net income of $6.5 million or less (after federal income taxes) for the two preceding years.
- Job creation, or a public-policy goal. A 504 project is generally expected to create or retain one job for every $95,000 of SBA debenture (one per $150,000 for small manufacturers and energy projects). A project that doesn’t meet that ratio can still qualify by advancing a community-development or public-policy goal — rural development, exports, energy reduction, or minority-, women-, and veteran-owned business development among them — as long as the CDC’s overall portfolio averages one job per $150,000.
SBA 504 vs. 7(a): Which One Fits
These are the SBA’s two flagship programs, and they solve different problems. The short version: 504 is the fixed-asset specialist; 7(a) is the flexible generalist.
| Factor | SBA 504 | SBA 7(a) |
|---|---|---|
| Best for | Real estate, construction, heavy equipment | Working capital, equipment, refinancing, mixed uses |
| Rate | Long-term fixed (CDC portion) | Commonly variable; fixed available |
| Structure | Bank + CDC + borrower (50/40/10) | Single lender, SBA-guaranteed |
| Maximum | $5M debenture ($5.5M some projects); larger total project | Up to $5 million |
| Working capital? | No | Yes |
A useful rule of thumb: if you are buying, building, or equipping something you’ll own for a decade or more, the 504’s long fixed rate is hard to beat. If you need working capital, flexibility, or a single, faster loan, a 7(a) or SBA Express loan is usually the better fit. And thanks to the July 2026 $10 million cumulative cap, you no longer have to choose — an existing 7(a) balance no longer eats into your 504 borrowing capacity, so many businesses use both. (The netting isn’t symmetric: a 504 loan still counts against your 7(a) room.) Our guide to SBA loan requirements covers what qualifying looks like in practice.
How REIL Capital Helps
REIL Capital arranges SBA 504 financing through its SBA lending partnership and CDC network, coordinating the bank loan, the CDC debenture, and your equity so the pieces close together instead of stalling each other. We’ll help you weigh a 504 against a 7(a) for your specific project and size the down payment realistically. Explore SBA financing with REIL Capital to see current options and start a conversation.
FAQ
What is an SBA 504 loan used for?
Long-term fixed assets: purchasing, building, or renovating owner-occupied commercial real estate, and buying major equipment with a useful life of 10 years or more. It cannot be used for working capital, inventory, or rental/investment property.
How does the 504 down payment work?
You typically put down about 10%. It rises to about 15% if your business is under two years old or the property is special-purpose, and to about 20% if both apply. A bank funds roughly 50% and a CDC funds roughly 40% through an SBA-backed debenture.
What are current SBA 504 interest rates?
As of July 2026, effective 504 rates are approximately 6.17%–6.20% on the standard 20- and 25-year terms. New-loan rates reset monthly with each debenture sale, and once your loan closes the rate is fixed for its full term.
How much can you borrow with a 504 loan?
The SBA-backed debenture is capped at $5 million for most projects, or $5.5 million for small manufacturers and certain energy projects. Because the bank’s share isn’t SBA-capped, total project financing can be considerably larger.
Should I choose a 504 or a 7(a) loan?
Choose a 504 for real estate, construction, or long-lived equipment where a long fixed rate matters most. Choose a 7(a) for working capital, flexibility, or a single faster loan. Under the July 2026 $10 million cumulative cap, many businesses use both.
