Grow Financial Federal Credit Union
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January 31, 2022

All About SBA 504 Loans: A Financing Option for Small Businesses

Do you have borrowing needs for your business but don’t want to use all your cash to do it, or have you tried to qualify your business for conventional financing but haven’t been approved? The SBA-backed 504 loan might be worth a look. This loan program is designed to help growing businesses get access to capital. It requires only a 10 percent borrower contribution, so you can keep more of your cash on hand.* Wondering how it works? That’s where we come in. We partner with the SBA to provide 504 loans and are here to help you along the way! Let’s take a look at the SBA 504 loan.

What is the SBA 504 loan?

An SBA 504 loan is comprised of three parts:

  • 10% down payment: Your contribution makes up the first 10 percent. (Under certain circumstances, you may be required to contribute up to 20 percent of the total project cost.*)
  • 50% bank or credit union loan: A conventional first mortgage comes from a third-party lender. (Hi, that’s us!) This loan is typically for 50 percent of the project cost.
  • 40% certified development loan: Here’s the SBA-backed portion of the 504 loan, which functions as a second mortgage and covers up to 40 percent of eligible project costs.

What can I do with the SBA 504 loan?

Alright, so of course, there are specific rules around what a 504 loan can be used for. It’s a loan designed to finance fixed assets, like machinery, buildings, land or other long-term improvements. This loan is not for working capital, restructuring debt, speculation or rental properties. Let’s break down the details:

Loan amounts: Loans are typically capped at a maximum of $5 million in most circumstances.
Interest rate: Rates are fixed for the life of the loan.
Terms: 10-, 20- or 25-year terms are available.
Low down payment: A low down payment keeps your working capital on hand.
Use of funds: Long-term, fixed assets for things like expanding or modernizing. (Think real estate or machinery.)

Am I eligible for a 504 loan?

To be eligible for a 504 loan, your business must:

  • Run as a for-profit company in the U.S. (or its territories)
  • Have a tangible net worth of less than $15 million
  • Have an average net income of less than $5 million after federal income taxes for the two years before you apply

You’ll also need to be within SBA size guidelines, have management expertise, a realistic business plan, sound character and the ability to repay the loan. Also, SBA loans can’t be made to businesses that are nonprofit or engaging in passive or speculative activities. Learn more about the SBA 504 loan.

Ready for more information?

If all this sounds complicated, don’t worry. We’re here to help you figure out if this program is right for your business and can talk you through all your options.

Get in touch with our Business Solutions team today. Our Commercial Loan Officers understand the needs of small business owners and are here to help you navigate financing for your business.


Subject to credit approval. *Startup and special-purpose properties may require an additional contribution from the borrower.

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