An SBA 504 loan helps established businesses finance the building they occupy or major long-life equipment without draining working capital.
How the SBA 504 structure works
A typical 504 transaction combines a first mortgage from a bank or commercial lender, a second-lien portion arranged through a Certified Development Company and a borrower equity contribution. That structure can offer longer-term stability and lower equity requirements than many conventional commercial real estate loans, although the final structure varies by project and underwriting.
Eligible uses
SBA 504 proceeds are generally used to purchase, build, expand or renovate owner-occupied commercial real estate, or to acquire qualifying long-life equipment. The program is not designed for passive investment property, goodwill-only acquisitions or general working capital.
Owner-occupancy matters
The operating company must occupy the required portion of the property. A warehouse, office, medical building, manufacturing facility or other business-use property may qualify when the borrower's company will use the space rather than hold it solely as a rental investment. Businesses considering an owner-occupied building can also finance an owner-occupied warehouse with a similar structure.
504 versus conventional financing
A conventional loan can be simpler and may close faster for a strong borrower with ample liquidity. SBA 504 can be more attractive when conserving cash, obtaining a longer amortization or reducing rate risk matters. Market Capital Lending compares both executions rather than forcing every owner-occupied deal into the same program. For a closer look at how the two SBA programs differ, compare SBA 7(a) versus 504.