The 504 program provides long-term, fixed-rate financing for major fixed assets through a Certified Development Company working alongside a senior lender. It is a three-part structure, and the part most projects get wrong is the borrower contribution: it is not always 10 percent. This page sets out how a 504 project is financed, which costs are eligible, and what the file has to demonstrate.
What it is: long-term, fixed-rate financing for major fixed assets, delivered by a Certified Development Company (CDC) in collaboration with a senior lender. SBA states the maximum 504 loan amount is $5.5 million.
How it is structured: a CDC debenture for up to 40 percent of project costs, secured by a second lien; a third-party loan for the balance, secured by a first lien; and the borrower’s own contribution. The debenture is guaranteed 100 percent by SBA.
What it cannot fund: working capital or inventory, speculation or investment in rental real estate, and debt that does not meet the “qualified debt” definition.
| Layer | Share of project cost | Position |
|---|---|---|
| Third-party loan (senior lender) | The balance of the financing | First lien on the project property |
| 504 loan funded by a CDC debenture | Up to 40 percent of project costs and certain administrative costs | Second lien |
| Borrower contribution | 10 to 20 percent, per 13 CFR 120.910 | Cash, or land that forms part of the project property |
The debenture carries a 100 percent SBA guarantee with the full faith and credit of the United States and is sold into debenture pools, which is why the 504 rate is fixed at the debenture sale rather than negotiated with the CDC.
| Borrower or operating company has operated two years or less | At least 15 percent |
|---|---|
| Project involves a limited or single purpose building or structure | At least 15 percent |
| Both conditions apply | At least 20 percent |
| All other circumstances | At least 10 percent |
A new-build hotel, car wash, bowling centre, gas station or care facility owned by a company formed for the project usually sits in the 20 percent row, not the 10 percent row. The contribution may be land already owned by the borrower that forms part of the project property, and it may itself be borrowed, subject to the subordination and reasonable-rate conditions in 13 CFR 120.912.
13 CFR 120.882 treats the following as eligible 504 project costs, among others:
For a refinancing project, the portion provided by the 504 loan and the third-party loan may be no more than 90 percent of the fair market value of the fixed assets serving as collateral — which is why an independent appraisal sits on the critical path. The firm’s commercial appraisal practice is separate from its study practice, and the two are never bundled into one opinion.
A 504 project must meet an economic development objective. A Job Opportunity is defined as a full-time (or equivalent) permanent job created within two years of receipt of 504 funds, or retained in the community because of the 504 loan. A CDC’s portfolio must maintain a minimum average of one Job Opportunity per an amount of 504 funding that SBA specifies from time to time by Federal Register notice (13 CFR 120.829), so the current figure comes from that notice rather than from the regulation text.
Where a project cannot meet the job test on its own, the alternative is to satisfy one of the other economic development objectives at 13 CFR 120.861–120.862. Either way the projected employment has to be defensible: the payroll in the projections and the jobs claimed in the application must be the same set of people. That reconciliation is a normal part of the firm’s grant and incentive feasibility work and of economic impact analysis.
SBA publishes 10-, 20- and 25-year maturity terms for 504 loans. Borrowers with active 504 loans pay through the Central Servicing Agent, usually by monthly ACH draw. Because the debenture rate is set at sale, the borrower’s fixed rate is known only when the debenture funds — projections prepared for the file should therefore be stress-tested across a rate range rather than a single assumption. The DSCR sensitivity calculator shows how quickly coverage moves.
The firm prepares the independent feasibility and market analysis CDCs and senior lenders ask for, and separately appraises property where an appraisal is required. It also runs portfolio monitoring for CDCs after closing. Fixed fee quoted in one business day; delivery in 10–15 business days.
Last reviewed September 2026 · SBA sets these terms and changes them; confirm current figures with the CDC and the sources below.
Fixed fee quoted in one business day. Independent analysis only — Wert-Berater does not arrange, broker or place capital.
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Wert-Berater, Inc. is an independent provider of feasibility studies and other related services. The firm does not provide financing or equity investment advice, and does not arrange, broker, or place debt or equity capital of any kind.
All appraisal assignments are performed by Bruce E. Jones, MAI, ASA-GC, BCA, CMEA, a member of the Appraisal Institute since 2006, a staff member of Wert-Berater, Inc. and owner of Special Purpose Realty Valuation.