What is an SBA 504 Loan?

The Small Business Administration 504 Loan Program is a long-term financing tool that promotes economic development within a community.  The 504 Program provides small businesses with long-term, fixed-rate financing to acquire major fixed assets such as real estate or machinery and equipment for expansion or renovation.  The small business is able to obtain up to 90% financing on these assets.  Typically, the financing structure is as follows:

Source % of Project Lien Position Interest Rate & Term Maximum Loan
Bank 50 1st Market No Maximum
(SBA Debenture)
40 2nd 20 or 25 years fixed Real Estate or 10 years fixed Equipment $5,000,000 ($5,500,000 per project for manufacturers and green projects)
Borrower 10

Use of Proceeds

Proceeds from 504 loans can be used for any of the following:

  • Purchase of land and improvements, including an existing building
  • Construction of a new facility
  • Modernizing or renovating an existing facility
  • Providing leasehold improvements
  • Purchase of machinery and equipment with a minimum useful life of 10 years
  • Other soft costs associated with any of these aforementioned projects
  • Some debt refinance


The borrower must operate for profit. The borrower must have a tangible net worth of $15 million or less, and it must have experienced an average profit of less than $5 million over the last two fiscal years. SBA 504 loan size is linked to job creation. A small business owner must create and/or retain jobs to qualify for an SBA 504 loan.

Advantage to the Borrower

Unlike conventional loans, SBA 504 loans are structured to help preserve working capital.

  • The small business owner gets the tax benefits and appreciation on the real estate, and also locks in occupancy costs for the long term with financing tailored to the borrower’s needs.
  • With financing available for up to 90% of the project cost, SBA 504 loans offer an affordable down payment, enabling the borrower to conserve working capital and retain liquidity to meet operating needs.
  • Terms are fixed for the life of the loan, so there are no payment uncertainties facing the borrower.
  • The SBA 504 borrower can borrow up to $5 million in SBA funding. Manufacturers and energy related business can quality for up to $5.5 million.

Advantage to the Lender

  • SBA 504 rates and terms offer lenders a competitive advantage when soliciting new clients.
  • SBA 504 offers an improved loan to value for the first mortgage lender.
  • SMFA processes all of the paperwork:
  • Organizes the application and completes the paperwork
  • Provides the financing
  • Processes, closes and services the loan

Other Important Facts About SBA 504 Loans

  • Owner-occupancy percentages required are 51% of the square footage for existing buildings or 60% for new construction.
  • Soft costs, such as appraisal, environmental, interim interest, etc., can be included if the collateral value allows.
  • Refinancing is limited to 50% of the expansion amount for an expansion loan. SBA 504 loans can also be used to build additions.
  • Businesses can qualify for multiple SBA 504 loans.
  • Guarantees are required for owners with 20% or more ownership in either an operating company or a real estate entity.
  • Liquid asset limitations of borrowers are calculated per individual, not in the aggregate, and must be less than total financing.
  • If financing a new business or a single use property, 15% equity will be required. If both, 20% is required.

Call today for the latest SBA 504 interest rates!

"SMFA urged us to think bigger than we were. We are really excited about the potential for our business and to be able to do what we love, right here in Maine."

Derek Bedford

Possum Hollow Farm Soaps

"I approached SMFA for a loan and they worked with me to find exactly the right combination of funding sources to provide my company with the money it needed, at the right rate, in a timely manner."

Mike St. Pierre

Hyperlite Mountain Gear