SBA 504 Loans for Business Property and Equipment

Growth can require a larger facility, an additional location or major equipment that will serve the business for years. SBA 504 is designed for eligible long-lived fixed assets, including owner-occupied real estate and equipment. Ovesture helps you secure financing for these investments, with support preparing the project budget and financial file and comparing lender and CDC structures. A 504 is not a general-purpose loan: the asset, occupancy and project requirements determine whether it fits. Explore our business financing services for investments that also need acquisition funding or growth capital.

What is an SBA 504 loan, and what does it fund?

According to SBA.gov (12 November 2026), the 504 loan program provides long-term, fixed-rate financing for major fixed assets that promote business growth and job creation. It is delivered through a Certified Development Company, an SBA-approved community-based partner, working alongside a conventional lender. The defining feature is the use of funds: 504 money is for assets you own and use, not for day-to-day operating needs.

SBA states that 504 proceeds can be used for purposes such as:

• Buying existing buildings or land, or constructing new facilities.
• Improving or modernizing land, streets, utilities, parking lots, and existing facilities.
• Purchasing long-term machinery and equipment.

Equally important is what a 504 will not fund. SBA is explicit that the program does not cover working capital, inventory, or general debt consolidation, and it cannot be used to buy property held for speculation or investment. That single restriction is the clearest reason a business with mixed needs may compare a 7(a) loan instead. For the exact, current use-of-funds list, always read the 504 program page on SBA.gov, because these rules are set and updated by SBA.

SBA 504 loan requirements

The program rules come from two places: SBA.gov for the headline criteria and SBA's regulations, 13 CFR Part 120 and 13 CFR 121.301, for the figures (read 12 November 2026). The core SBA 504 loan requirements are:

• An operating, for-profit business in the U.S. SBA.gov requires an operating business that runs for profit, is located in the United States and is not an ineligible business type under 13 CFR 120.110. It also looks for qualified management, a feasible business plan, good character and the ability to repay.
• Small under SBA size standards. A business qualifies either under the size standard for its industry or under the alternative test in 13 CFR 121.301(b): tangible net worth, including affiliates, of no more than $20 million and average net income after federal income taxes for the two preceding fiscal years of no more than $6.5 million.
• Owner occupancy. Under 13 CFR 120.131, a business buying, renovating or reconstructing an existing building must occupy at least 51% of the rentable space and may lease out the rest. For new construction it must occupy at least 60% at the start, may permanently lease up to 20%, and must plan to grow into the remainder within ten years. Rental or investment property does not qualify.
• Eligible fixed assets. Buildings and land, construction and renovation, and machinery or equipment with at least a 10-year useful life. SBA.gov excludes working capital, inventory and speculative real estate.
• Job creation or a public policy goal. Under 13 CFR 120.861 a project must create or retain one job opportunity per an amount of 504 funding that SBA sets by Federal Register notice. Under 120.862 a project can instead qualify by meeting a listed community development or public policy goal, such as revitalizing a business district, expanding a women-, veteran- or minority-owned business, rural development, or cutting energy use by at least 10%, provided the CDC's overall portfolio still meets its job average.
• Down payment, typically 10%. 13 CFR 120.910 sets the borrower contribution at at least 10% of project cost, rising to 15% if the business has operated for two years or less or the building is limited or single purpose, and to 20% if both apply.

SBA.gov caps the 504 loan itself at $5.5 million, with 10-, 20- and 25-year maturities. On top of the program rules, the bank and the Certified Development Company each underwrite the project: personal credit, the business's cash flow and debt service coverage, the appraisal and, for real estate, environmental review. Meeting the program requirements makes a project eligible to be considered; it does not make it approved.

Example: a practice buying its building

Consider a dental or medical practice that has leased the same space for years and has the chance to buy the building. If the practice will occupy at least 51% of the space, the purchase is an owner-occupied project a 504 is designed for. Its numbers would be organized as a bank first lien, a CDC second lien and the practice's down payment, typically 10% for an established practice in a building that is not special purpose. If the practice instead builds a new office, the 60% occupancy test applies, and a lender may treat a heavily built-out clinical space as limited or single purpose, which raises the contribution. The question to settle early is whether projected debt service on the building compares sensibly with the rent the practice pays today. See current SBA 504 loan rates for the published CDC rate and a worked payment example.

Should a business use an SBA 504 or a 7(a) loan?

Both are SBA loans, and both can finance real estate, so owners reasonably compare them. The distinction is scope. A 504 is a specialist fixed-asset loan; a 7(a) is a flexible generalist. Here is how they compare against a conventional commercial mortgage for a business that wants to own its premises or major equipment.

The candid summary: a 504 is excellent for what it is designed to do and a poor choice for anything else. If you need working capital in the same deal, look at a 7(a). If your credit is strong and speed matters more than the SBA structure, compare a conventional loan first. Discuss your project to compare structures against the same budget and use of funds.

How is a 504 loan structured?

A 504 is not a single loan from a single lender. It brings together three parties: a conventional lender with a first lien, typically about 50% of the project; a Certified Development Company whose second-lien share, typically about 40%, is funded by an SBA-guaranteed debenture; and you, the borrower, with a down payment of typically 10%. Under 13 CFR 120.920 the bank's loans must at least equal the 504 loan, and must reach 50% of project cost for a business operating two years or less or a limited or single-purpose property. The CDC portion carries a fixed rate set at a monthly debenture sale; see current SBA 504 rates for the latest published figures and fees.

Build the financing schedule into your project plan. A 504 coordinates a lender, a CDC and the applicable SBA process. Appraisals, environmental checks and construction documentation can add time. The following outline is illustrative, not a closing commitment:

• Preparation. Assemble financials, the purchase or construction details, and a clear use of funds.
• Underwriting and approval. The conventional lender and the CDC review the project; SBA reviews the CDC portion.
• Appraisal and closing. Real estate deals add an appraisal and, often, environmental review before closing.

The structure is designed for an asset you intend to hold and use for years. We help compare its cash requirements and timeline with conventional property or equipment financing before you commit to a purchase or construction schedule.

Which business projects may fit?

Established businesses across industries may consider a 504 when buying the premises they occupy, expanding a facility or investing in long-life equipment. The project must meet program and lender requirements; industry alone does not establish eligibility. Professional practices are one subset, with dedicated guides for:

• Doctors and dentists buying a clinic building or financing imaging, chairs, and other long-life clinical equipment.
• Law firms purchasing their office premises rather than continuing to lease.
• Accounting firms acquiring a permanent home for a growing practice.

In every case the question is the same: is this a long-term fixed asset you will own and use, and can the business comfortably carry the debt? A qualifying project may warrant comparing a 504 with conventional financing. If the need is broader, compare other structures too.

How Ovesture works with 504 lenders and CDCs

A 504 has two underwriters, the bank and the CDC, and each needs the same project told the same way. Ovesture helps you prepare that file: the project budget and use of funds, the business financials and the occupancy plan for the building. We then help you compare the structures available for the project, including different bank and CDC combinations, a 504 against a 7(a) or conventional loan, and the cash each needs at closing. The bank, the CDC and SBA make the credit decisions and set the terms. Discuss your property project.