SBA 504 Loan Requirements: Down Payment, Costs, and Eligibility

To qualify for an SBA 504 loan, your business must be a for-profit U.S. company under the program’s size caps, the project must involve fixed assets like real estate or long-life equipment that you’ll occupy and use, you need to contribute at least 10% equity, every 20%-or-greater owner must personally guarantee the debt, and the project has to create or retain jobs or meet another economic development goal. The SBA 504 loan requirements below break down what each of those pieces actually means in practice, and where the thresholds shift depending on your business or the property.

Who Qualifies as a Borrower

The 504 program uses an alternative size standard rather than the industry-specific employee counts found in other SBA programs. Your business, including any affiliates, must have a tangible net worth of no more than $20 million and average net income after federal taxes of no more than $6.5 million over the two preceding fiscal years.¹ Those caps are wide enough to cover most independent businesses while excluding large enterprises.

The business must be for-profit and operate within the United States. If you’re using 504 funds to buy an existing building, you must occupy at least 51% of it. For newly constructed buildings, that occupancy threshold rises to 60%. You can lease the remaining space to tenants, but your business has to be the primary occupant.

Businesses That Cannot Use the Program

Several categories of businesses are barred from SBA lending entirely. The most common disqualifiers:

Passive investment businesses owned by developers or landlords that don’t actively use the financed property, with narrow exceptions for certain holding company structures
Financial businesses primarily engaged in lending, including banks and finance companies
Businesses deriving more than one-third of gross annual revenue from legal gambling
Nonprofits, though for-profit subsidiaries of nonprofits may qualify
Any operation illegal under federal, state, or local law
Speculative ventures such as oil wildcatting
Political or lobbying organizations
Businesses, or businesses controlled by people, that previously defaulted on a federal loan and caused a loss

The full list at 13 CFR § 120.110 also excludes life insurance companies, pyramid sales operations, private clubs that restrict membership for non-capacity reasons, and businesses that present sexually explicit live entertainment.²

What the Project Must Accomplish

Every 504 project has to serve an economic development purpose. The main test is job creation. As of October 1, 2025, a project must create or preserve at least one job for every $95,000 in SBA-guaranteed debenture proceeds. Small manufacturers and projects meeting an energy public policy goal have a more relaxed threshold of one job per $150,000.³

If your project can’t hit the job numbers, it may still qualify by satisfying an alternative community development objective. Revitalizing a business district, expanding exports, helping a rural area, or modernizing a minority-owned enterprise all count. The CDC handling your loan will help identify which public policy goal fits your project during the application.

What You Can Finance

The 504 program is limited to fixed assets: permanent, long-lived property that supports business operations. Eligible uses include:

Buying land or existing buildings
Constructing new facilities
Renovating or modernizing existing properties
Making site improvements like grading, paving, utilities, and landscaping
Purchasing long-term equipment with a remaining useful life of at least 10 years

The program will not finance working capital, inventory, or goodwill. For those, the 7(a) program is the alternative.⁴

The maximum SBA-guaranteed debenture is $5.5 million for most projects. Because the debenture covers up to 40% of the total, projects can reach roughly $13.75 million when the private lender’s share and your equity are added in. Repayment terms on the CDC portion run 10, 20, or 25 years, generally matching the useful life of the assets.⁴

Refinancing Existing Debt

The 504 program can also refinance existing debt tied to eligible fixed assets. There are two paths.

When refinancing is part of a business expansion, at least 75% of the original loan proceeds must have been used to acquire land, construct a building, or purchase equipment that would qualify for 504 financing. You must have been current on all payments for the past year, and the new financing must offer better terms or a lower rate than the existing debt.⁵

Refinancing without expansion is available too, but the business must have been operating for at least two years at the time of application. The same 75% fixed-asset test applies to the original debt, and the new installment amount on the refinanced portion must be lower than what you’re paying now. Eligible business expenses like unpaid operating costs or other secured debt can be folded into the refinancing project.⁵

How Much You Have to Put Down

The standard borrower equity injection is 10% of total project cost, which is well below what conventional commercial lenders typically require. The minimum climbs in two situations:

15% if your business has been operating for less than two years
15% if the property is a special-purpose building (a single-use facility such as a car wash or gas station that would be hard to convert to other uses)
20% if both factors apply, meaning a startup buying a special-purpose property

Collateral and Personal Guarantees

The project assets themselves serve as collateral. The private lender takes a first lien on the property, and the CDC takes a second lien. In most cases the financed real estate or equipment is all the collateral the project needs.

Every owner holding 20% or more of the business must sign an unlimited personal guarantee.⁶ If the business defaults, the SBA and lender can pursue those owners’ personal assets. Spouses who own a share of the business may also need to guarantee. Owners with less than 20% typically don’t have to sign, though the private lender may impose its own guarantee requirements.

Documentation You’ll Need to Submit

The core application form is SBA Form 1244, “Application for Section 504 Loans,” available through the SBA’s electronic forms library or your CDC.⁷ Beyond that form, expect to provide:

Three years of federal tax returns for the business and for every individual owner holding 20% or more
A balance sheet and profit-and-loss statement dated within 120 days of submission
Aging schedules for accounts receivable and accounts payable
A debt schedule listing all existing business liabilities with terms, balances, and payments
A business plan covering your services, market position, management experience, and how the new asset will affect operations
A narrative explaining how the project will create or retain jobs, or which alternative public policy goal it satisfies

Real estate projects also require a professional appraisal and, in most cases, a Phase I Environmental Site Assessment to confirm the property carries no contamination liabilities. Construction projects add detailed cost estimates, architectural plans, and contractor bids. Your CDC will provide a complete checklist.

What the Loan Costs You

The CDC portion carries a fixed interest rate for the full life of the loan, priced at an increment above the current market rate for U.S. Treasury securities at the time the debenture is sold.⁴ In the first half of 2026, 20-year debenture rates have ranged from roughly 4.6% to 4.8%, and 10-year debenture rates from 4.1% to 4.4%. The private lender sets its own rate on its first mortgage, which may be fixed or variable.

SBA fees on the debenture include a guarantee fee, a CDC processing fee, and an ongoing annual servicing fee added to your monthly payment. Together these typically add roughly 0.5% to 1% to the effective rate above the base debenture rate. Your CDC can provide the exact breakdown for the current fiscal year.

Prepayment penalties are the tradeoff for the locked-in rate, and this is worth understanding before you sign. On 20- and 25-year loans, the penalty period lasts 10 years. On 10-year loans, it lasts five. The penalty starts at the full debenture rate in year one and declines by 10% each year until it reaches zero. If your debenture rate is 5%, the penalty in year one is 5% of remaining principal, falling to 4.5% in year two, 4% in year three, and so on. Once you pass the halfway point of the loan term, there is no prepayment penalty at all. If you might sell or refinance in the early years, factor that cost into the decision now rather than at closing.

1
eCFR. 13 CFR 121.301 – What Size Standards and Affiliation Principles Are Applicable to Financial Assistance Programs
2
eCFR. 13 CFR Part 120 Subpart A – Ineligible Businesses and Eligible Passive Companies
3
Federal Register. Development Company Loan Program – Job Creation and Retention Requirements; Additional Areas for Higher Portfolio Average
4
U.S. Small Business Administration. 504 Loans
5
eCFR. 13 CFR 120.882
6
U.S. Small Business Administration. Unconditional Guarantee
7
U.S. Small Business Administration. Application for Section 504 Loans