The SBA 504 loan exists for one job: helping a business own the fixed assets it operates from — commercial real estate and major equipment — with a low down payment and a long-term fixed rate. Where 7(a) is the flexible generalist, 504 is the specialist for owner-occupied buildings. Jaken Finance Group helps you get matched to a 504 structure and can bridge the purchase when the SBA timeline is too slow. Request commercial financing or call (833) 264-7776.
How a 504 loan is structured
A 504 is really two loans plus your equity, a structure often summarized as 50/40/10:
- ~50% — a conventional first-lien loan from a bank or lender
- ~40% — a debenture from a Certified Development Company (CDC), backed by the SBA, at a long-term fixed rate
- ~10% — your down payment (15%–20% for startups or special-use property)
That layered structure is what lets a small business put as little as 10% down on a building it would otherwise struggle to finance conventionally.
What 504 funds — and what it doesn’t
Eligible: purchasing owner-occupied commercial real estate, ground-up construction of owner-occupied space, major renovations, and long-life equipment and machinery.
Not eligible: working capital, inventory, or general operating expenses — use 7(a) for those — and any non-owner-occupied investment property.
SBA 504 rates and terms (2026)
| Parameter | Detail |
|---|---|
| SBA/CDC portion | Up to $5.5M (total projects to ~$30M) |
| Rate | Long-term fixed via CDC debenture |
| Term | 10, 20, or 25 years |
| Down payment | As little as 10% |
| Occupancy | 51% existing / 60% new construction |
The fixed rate is the reason owner-operators choose 504 for real estate: it removes the interest-rate risk that variable-rate loans carry over a 25-year hold.
The public SBA 504 loans page does not state one maximum. The headline says long-term, fixed-rate financing of up to $5 million. The program section on that same page says the maximum 504 loan is $5.5 million. The SBA lenders comparison lists CDC/504 size as $25,000 to $5.5 million. Use $5.5 million. Mention the $5 million headline when you send the file, so nobody “corrects” the request downward.
That payback section also lists maturity terms of 10, 20, and 25 years. It says the rate is pegged to an increment above the current market rate for 10-year U.S. Treasury issues. It says the add-on totals approximately 3% of the debt and that the rate may be financed with the loan. The 10-year Treasury yield itself was 5.31% on October 5, 2026, on FRED DGS10. SBA does not publish the increment on that page. Adding a guessed spread to 5.31% would invent a borrower rate. Get the debenture quote from the CDC.
Fees and prepayment
Two practical points shape a 504’s true cost. First, fees: the CDC/debenture side carries its own fee schedule, and there was no SBA guaranty fee on the 504 program for fiscal 2025 — a meaningful saving versus 7(a), which does charge a guaranty fee that scales with loan size. Second, prepayment: the debenture typically carries a declining prepayment penalty over roughly the first decade, so 504 rewards borrowers who intend to hold the property rather than flip or refinance quickly. If your horizon is short or uncertain, a shorter-term bridge or a 7(a) may fit better. Model the all-in cost — rate, fees, and prepayment — not just the headline rate.
Eligibility
- For-profit U.S. small business occupying the majority of the property
- Sound business cash flow (typically ~1.15x coverage)
- As of March 1, 2026, 100% of direct and indirect owners must be U.S. citizens or U.S. nationals residing in the United States
504 vs 7(a) — and the faster path
Choose 504 when you’re buying or building a property your business will occupy and want a fixed rate; choose 7(a) when you need flexibility across working capital, acquisition, and real estate in one loan. Full breakdown: SBA 504 vs 7(a). Eligible borrowers can now hold 504 next to 7(a) under the $10 million combined limit.
Because a 504 can take 45–90+ days, Jaken Finance Group can bridge the purchase now and let the 504 take it out later — see bridge now, SBA later. If the building will be non-owner-occupied, 504 won’t fit; consider owner-occupied commercial loans or investor products like DSCR.
A 504 worked example: buying your building
A dental practice buys the $1,000,000 building it occupies. A typical 504 stack:
- ~$500,000 (50%) — conventional first-lien bank loan
- ~$400,000 (40%) — CDC debenture, SBA-backed, long-term fixed rate
- ~$100,000 (10%) — owner down payment
Against a conventional owner-occupied loan that might require 20%–25% down, the 504 frees roughly $100,000–$150,000 of capital the practice keeps for equipment and working capital — while locking a fixed rate for the life of the debenture. That capital efficiency plus rate certainty is why owner-operators choose 504 for real estate.
504 for ground-up construction
The 504 program also funds owner-occupied construction — building the space your business will operate from. Two things change versus a purchase:
- Occupancy rises to 60% for new construction (versus 51% for an existing building)
- Draws and timeline extend the process, so a construction bridge is often used to fund the build, with the 504 as the permanent takeout at certificate of occupancy
See SBA construction loans for the owner-occupied build path, and commercial construction cost per square foot to sanity-check your budget.
How the debenture is priced and repaid
The 504’s SBA-backed portion is funded by a debenture sold to investors, and your fixed rate is set at the debenture’s pricing plus small ongoing CDC and SBA servicing fees. Debentures are offered in 10-, 20-, and 25-year terms, so you match the term to the asset — 25 years for real estate, shorter for equipment. That fixed rate is locked at funding for the life of the debenture, which is the structural reason a 504 removes the interest-rate-reset risk a balloon-structured conventional loan carries over a long hold. Qualifying manufacturers may also access FY2026 fee relief on the 504 program. When you compare a 504 against a conventional owner-occupied loan, weigh the full picture — down payment, fixed versus resetting rate, fees, and prepayment — not the headline rate alone, because the 504’s long-term certainty is often worth more than a slightly lower starting rate.
What the two liens actually cover
The SBA lenders page describes a typical 504 project in three pieces. A private lender takes a senior lien covering up to 50% of project cost. A CDC loan, backed by a 100% SBA-guaranteed debenture, takes a junior lien covering up to 40%. The borrower contributes at least 10% equity. Those are caps and a minimum, not a promise that every file is priced at the cap.
Illustration. An owner-occupied warehouse costs $2,200,000. At a 50/40/10 stack:
| Piece | Share | Amount |
|---|---|---|
| Bank first lien | 50% | $1,100,000 |
| CDC debenture | 40% | $880,000 |
| Borrower equity | 10% | $220,000 |
$1,100,000 + $880,000 + $220,000 = $2,200,000. If the CDC requires 15% equity because the business is a startup or the building is special-use, equity becomes 0.15 × $2,200,000 = $330,000. The bank and CDC then resize the other $1,870,000. This illustration does not assign that remainder. The CDC does.
The 504 program page says a 504 loan cannot be used for working capital, inventory, or speculation or investment in rental real estate. It also says loans cannot be made to businesses engaged in nonprofit, passive, or speculative activities. A landlord who buys a building to lease to tenants is in that excluded group. The business that will occupy the building is the borrower the program describes.
Eligible uses on that page include purchase, construction, or renovation of existing buildings or land, and long-term machinery and equipment with a remaining useful life of at least 10 years. The equipment use includes project-related AI-supported equipment or machinery for manufacturing products. Refinance is limited to debt that page calls qualified debt under 13 CFR 120.882, paragraphs (e) and (g). The page says debt that does not meet that definition cannot be consolidated or refinanced with 504. Read those conditions with the CDC before you count old debt in the project.
Construction budgets and the materials index
Ground-up and heavy renovation files feel materials inflation directly. The producer price index for construction materials was 375.908 in August 2026, up 10.1% from 341.458 in August 2025, on FRED WPUSI012011. Index 1982 = 100, not seasonally adjusted.
Illustration. A contractor’s materials allowance was $400,000 when it was priced off the August 2025 index. The index ratio is 375.908 / 341.458 = 1.10089, which rounds to the 10.1% increase. $400,000 × 1.10089 = $440,356. The increase is $40,356 if the whole materials basket moved with that index. Labor, land, and general conditions are not in WPUSI012011. Rebid those lines. A 504 construction file that keeps last year’s materials number will miss draws.
Jaken Finance Group can bridge an owner-occupied purchase or build on a 7–10 business day close, at 8.99%–13.5% interest-only, while the CDC debenture is arranged. That bridge clock is for the bridge. The 504 itself still runs on the CDC and SBA calendar, often 45–90+ days, as the timeline section above describes.
Illustration of bridge carry. A $1,100,000 bridge at 8.99% interest-only costs $1,100,000 × 0.0899 / 12 = $8,240.83 per month. At 13.5%, the same balance costs $1,100,000 × 0.135 / 12 = $12,375 per month. Three months of carry is $24,722.50 at 8.99% and $37,125 at 13.5%. Points and the later 504 fee are separate.
Documents the CDC asks for before it orders the debenture
- Two or three years of business tax returns and an interim profit and loss
- A debt schedule that flags any loan you hope to refinance, so qualified-debt status can be checked
- A purchase contract or construction budget with the land, building, and equipment split
- Occupancy plan showing the operating business will use the space the program requires
- Articles, ownership ledger, and citizenship or nationality status for each owner
- Equipment list with remaining useful life where the CDC piece will finance machinery
- Environmental report if the use involves solvents, tanks, or prior industrial occupancy
- Source of the equity injection, wired from an account you can document
Call (833) 264-7776 if the building has to go under contract before the CDC debenture is funded.
Get matched for an SBA 504 loan
Buying or building the space your business runs from? We’ll help you pursue a 504 and bridge it if you need to move first. Request commercial financing or call (833) 264-7776.
Program details: SBA — loan programs. Rates and rules change; verify current terms at application. Jaken Finance Group helps owner-operators pursue SBA 504 financing and can bridge the purchase while the debenture is arranged.