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How are SBA 504 Loans Used for Small Businesses to by Real Estate

Updated: Sep 11, 2023


SBA 504 loans are a type of financing that small businesses can use to purchase real estate, typically for their own use or to expand their operations. These loans are designed to promote economic development by facilitating the acquisition of fixed assets, such as land, buildings, and equipment. SBA 504 loans involve a partnership between the small business borrower, a Certified Development Company (CDC), and a commercial lender. Here's how SBA 504 loans are used for small businesses to purchase real estate:

  1. Purchase of Real Estate: The primary purpose of an SBA 504 loan is to assist small businesses in purchasing real estate, such as land, buildings, or facilities, that will be used for their operations. This could include acquiring a new property or expanding an existing one.

  2. Down Payment and Loan Structure: With an SBA 504 loan, the financing is typically structured as follows:

    • The small business borrower provides a minimum down payment of 10% of the project cost.

    • A commercial lender (such as a bank) provides a first mortgage for 50% of the project cost.

    • A Certified Development Company (CDC), a nonprofit organization, provides a second mortgage (SBA-guaranteed portion) for up to 40% of the project cost.


  1. SBA Guarantee: The SBA provides a government guarantee on the CDC's portion of the loan, which reduces the risk for the CDC and encourages lenders to provide favorable terms to the borrower.

  2. Use Restrictions: The real estate purchased with an SBA 504 loan must be used for the business's operations. The borrower is generally required to occupy at least 51% of the property if it's a new acquisition.

  3. Eligibility Requirements: To qualify for an SBA 504 loan, the business must meet specific eligibility criteria, including being a for-profit company, having a tangible net worth within a certain limit, meeting size standards set by the SBA, and demonstrating the ability to repay the loan.

  4. Job Creation or Retention: One of the goals of the SBA 504 program is to promote job creation and retention. As a result, the business must demonstrate that the project will have a positive economic impact by creating or retaining jobs.

  5. Interest Rates and Terms: SBA 504 loans generally have competitive fixed interest rates and longer repayment terms, which can help small businesses manage their debt obligations more effectively.

  6. Application and Approval Process: The application process for an SBA 504 loan involves working with a CDC and a commercial lender. The CDC and lender will assess the business's financials, creditworthiness, and the viability of the project. Once approved, the loan can provide financing for the real estate purchase.

  7. Other Uses: While the primary focus of SBA 504 loans is real estate acquisition, they can also be used to finance certain capital expenditures related to the property, such as renovations and improvements.

SBA 504 loans can be a valuable financing option for small businesses looking to acquire real estate for their operations. They offer favorable terms, lower down payments, and longer repayment periods, making them an attractive choice for businesses seeking to expand or establish a physical presence.


Larry L. Gilmore, CMB, AMP

ClearBlu Group

President & CEO

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