What is the SBA 504 Loan Program?
The SBA 504 Loan Program provides long-term, fixed-rate financing for major fixed assets that promote business growth and job creation. It's designed to help small businesses acquire the assets they need to expand and modernize their operations.
This program is ideal for businesses looking to purchase real estate, construct new facilities, or acquire heavy equipment with favorable terms and low down payments.
Key Benefits
- Low Down Payment: As little as 10% down payment required
- Fixed Interest Rates: Locked-in rates for the life of the loan provide payment stability
- Long-Term Financing: Up to 25 years for real estate, 10 years for equipment
- Preserve Working Capital: Lower down payment means more cash for operations
- No Balloon Payments: Fully amortized loans with no surprises
- Competitive Rates: Below-market interest rates
- Job Creation Support: Designed to help businesses create and retain jobs
How It Works
The SBA 504 loan involves three parties working together:
1. Your Business
Contributes at least 10% of the project cost as a down payment.
2. Third-Party Lender
A bank or credit union provides 50% of the project cost with a senior lien position.
3. CDC (BDF Texas)
We provide up to 40% of the project cost through an SBA-guaranteed debenture.
Eligible Uses
Real Estate
- Purchase of land and existing buildings
- Construction of new facilities
- Renovation and expansion of existing buildings
- Site improvements and parking lots
Equipment & Machinery
- Manufacturing equipment and machinery
- Office furniture and fixtures (with useful life of 10+ years)
- Technology and computer systems
- Vehicles for business use
Refinancing
- Refinance existing debt on eligible fixed assets (under certain conditions)
- Refinance to improve cash flow and business stability
Eligibility Requirements
Business Qualifications
- For-profit business operating in the United States
- Meets SBA size standards for a small business
- Tangible net worth less than $15 million
- Average net income less than $5 million after taxes for preceding two years
- Demonstrates ability to repay the loan
Project Requirements
- At least 51% of the project must be occupied by the business
- Creates or retains jobs (typically one job per $65,000 of SBA funding)
- Meets public policy goals (job creation, economic development)
Loan Terms & Structure
Loan Amounts
The SBA 504 program can finance projects up to $5 million (or $5.5 million for manufacturing or energy-related projects).
Typical Structure
- 10% - Business equity (down payment)
- 50% - Third-party lender (conventional loan)
- 40% - CDC/SBA portion (debenture)
Interest Rates
The CDC/SBA portion features a fixed interest rate based on current market rates for 5-year and 10-year U.S. Treasury issues, plus a small spread. Rates are locked in at the time of debenture sale.
Repayment Terms
- Real Estate: Up to 25 years
- Equipment: Up to 10 years
- Payments: Monthly principal and interest
Application Process
Step 1: Initial Consultation
Contact BDF Texas to discuss your project and determine if the SBA 504 program is right for you.
Step 2: Lender Selection
We'll help you connect with a qualified third-party lender from our network of partners.
Step 3: Application Submission
Submit your application with required documentation including business financials, tax returns, and project details.
Step 4: Underwriting
Both the lender and BDF Texas will review your application and conduct due diligence.
Step 5: SBA Approval
Once approved by the lender and CDC, the application goes to the SBA for final authorization.
Step 6: Closing & Funding
After SBA approval, we coordinate the closing and funding of your project.
Required Documentation
To expedite your application, please prepare the following:
- Business tax returns (last 3 years)
- Personal tax returns for all owners with 20%+ ownership (last 3 years)
- Year-to-date profit & loss statement and balance sheet
- Personal financial statements for all owners
- Business plan or project narrative
- Purchase agreement or construction estimates
- Environmental questionnaire
- Business licenses and articles of incorporation
Frequently Asked Questions
How long does the approval process take?
The timeline varies by project complexity, but typically ranges from 60-90 days from complete application to closing.
Can I use the 504 program for working capital?
No, the SBA 504 program is specifically for fixed assets like real estate and equipment. Working capital must come from other sources.
What if my business is a startup?
Startups can qualify for the 504 program, but typically need to provide a larger down payment (15-20%) and demonstrate strong business plans and management experience.
Are there any fees?
Yes, there are processing fees, closing costs, and ongoing servicing fees. We'll provide a complete fee schedule during the application process.
Can I prepay my 504 loan?
Yes, but prepayment penalties may apply during the first half of the loan term to cover the cost of the SBA guarantee.