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How is an SBA 504 loan structured?
Usually as three pieces, not one loan. SBA says, “Typically, a project involving a 504 loan includes”: a loan from a private sector lender with a senior lien covering up to 50% of the project cost, a loan from a Certified Development Company (CDC) backed by a 100% SBA-guaranteed debenture with a junior lien covering up to 40% of the total cost, and a contribution from the borrower of at least 10% equity of the total project cost.
General education, not financial advice.
What the 504 program is for
SBA describes the program’s purpose this way:
“The 504 loan program provides long-term, fixed rate financing for major fixed assets that promote business growth and job creation.” (SBA)
Here’s how SBA describes a typical 504 project coming together.
The three-part stack, in SBA’s words
SBA: “Typically, a project involving a 504 loan includes:“
Piece 1: the private sector lender (senior lien)
“A loan secured from a private sector lender with a senior lien covering up to 50% of the project cost” (SBA)
Piece 2: the CDC (junior lien)
“A loan secured from a CDC — backed by a 100% SBA-guaranteed debenture — with a junior lien covering up to 40% of the total cost” (SBA)
Piece 3: the borrower’s contribution
“A contribution from the borrower of at least 10% equity of the total project cost” (SBA)
| piece | who | lien / role (SBA’s words) |
|---|---|---|
| 1 | private sector lender | ”senior lien covering up to 50% of the project cost” |
| 2 | CDC | ”backed by a 100% SBA-guaranteed debenture — with a junior lien covering up to 40% of the total cost” |
| 3 | borrower | ”at least 10% equity of the total project cost” |
Note SBA’s word typically. This is SBA’s description of a typical 504 project, not a promise about any specific deal.
Who a CDC is
The middle piece comes from a Certified Development Company. SBA explains:
“A Certified Development Company (CDC) is a nonprofit corporation set up to contribute to the economic development of its community. CDCs are certified and regulated by SBA.” (SBA)
“504 loans are available exclusively through Certified Development Companies (CDCs).” (SBA)
SBA program rule for SBA lenders; other loans follow their own policies. These are SBA program descriptions, not an offer, and not a statement that any lender the linked offer works with is an SBA lender.
FAQ
What does a typical SBA 504 project include?
SBA: “Typically, a project involving a 504 loan includes:”
- “A loan secured from a private sector lender with a senior lien covering up to 50% of the project cost”
- “A loan secured from a CDC — backed by a 100% SBA-guaranteed debenture — with a junior lien covering up to 40% of the total cost”
- “A contribution from the borrower of at least 10% equity of the total project cost”
What is the SBA 504 loan program for?
SBA: “The 504 loan program provides long-term, fixed rate financing for major fixed assets that promote business growth and job creation.”
What is a Certified Development Company (CDC)?
SBA: “A Certified Development Company (CDC) is a nonprofit corporation set up to contribute to the economic development of its community. CDCs are certified and regulated by SBA.”
Where are 504 loans available?
SBA: “504 loans are available exclusively through Certified Development Companies (CDCs).”
general education, not financial advice. this post is general education. it does not mean any specific loan type is available through pearl.
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Sources:
- SBA, 504 loans
- SBA, Lender programs, CDC/504 loan program section
Pearl Financing connects businesses seeking funding with lending partners. We are not a direct lender. Loan terms, rates, and approval are subject to credit review and vary by applicant. Not all applicants will qualify. Business-purpose financing only. This is not a commitment to lend.
