The SBA 504 Loan program provides financing to eligible small businesses for major fixed assets such as equipment or real estate. Loans are typically structured with the borrower providing anywhere from 10-20% of the costs of the project. Eligibility requirements apply to the 504 part of the project as well as the participating lending portion.

The eligibility requirements for the SBA 504 program are based on how a business earns income, the character of its ownership, and the location of the business operation. Businesses must typically meet size standards, have the means to repay the loan, and follow a sound business purpose. Businesses with bad credit may even qualify for startup funding. Lenders can provide the full list of eligibility requirements for an SB 504 loan.

The eligibility generally includes the following:

  • The business is officially registered and operates legally.
  • The business is physically located and operates in the U.S. or its territories.
  • The business owner has invested its own money or time into the business.
  • The business is unable to receive any financing from any other lender.

The structure of a 504 Loans typically consists of 40% of the total project costs financed by the SBA, 50% of the total project costs provided by a lending partner, and 10% of the project costs contributed by the borrower. Special circumstances do exist where a borrower may be required to contribute as much ass 20% of the total project costs.

The following is an example of how a typical 504 loan is structured:

A $1,000,000 project may include the following:

  • Building Purchase
  • Land
  • Renovation
  • Furniture and Equipment
  • Soft Costs

Loan Structure

  • $500,000, 1st lien with the bank (loan obtained from a private sector lender covering up to 50% of the total project cost)
  • $400,000, 2nd lien with a 504 loan, 20-year, fixed-rate  (loan obtained through a CDC, funded through an SBA-guaranteed debenture, covering up to 40% of the total project cost)
  • $100,000, borrower contribution (contribution from the borrower of at least 10% of the total project cost/)

The use of proceeds from 504 Loans must be used for fixed assets, (although some proceeds may be used for certain soft costs) including:

  • The purchase of existing buildings;
  • The purchase of land and land improvements, including grading, street improvements, utilities, parking lots and landscaping;
  • The construction of new facilities or the modernization, renovation or conversion of existing facilities;
  • The purchase of long-term machinery; or
  • The refinancing of debt in connection with an expansion of the business through new or renovated facilities or equipment.

It is important to note that the 504 Program may not be used for working capital or inventory, consolidating or repaying debt, or refinancing, although there are some exceptions to the latter under the Small Business Jobs Act of 2010.

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services and advice for clients in all aspects of commercial compliance, business litigation, and transactional law. Call us at (818) 888-2220, send an email inquiry to or visit us online at to learn more about the firm and to sign up for future newsletters.

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