Updated October 2026 · 2026 figures
A 504 loan is not a single loan. It is a three-part capital stack, and understanding that structure is the difference between qualifying and not.
The 50/40/10 structure
For a typical project, the funding comes from three sources:
- 50% — a conventional bank first mortgage, at market rates, up to 25 years
- 40% — a Certified Development Company (CDC) second lien, fixed rate, SBA-guaranteed
- 10% — borrower equity injection
Because the bank portion is a conventional first mortgage rather than an SBA-guaranteed loan, it is not capped. Total project financing routinely exceeds $20 million.
What 504 can fund: commercial real estate, land, and major equipment with a useful life of at least 10 years. What it cannot fund: working capital. Attempting to include working capital in a 504 application is a common reason for outright decline.
The job creation rule
This is the requirement that surprises people most. A 504 project must create or retain at least one job per $90,000 of SBA financing — $140,000 for certain energy-related projects.
So a $900,000 CDC portion implies roughly 10 jobs. Some projects qualify for a reduced test, and certain special purpose properties are exempt, but the rule shapes which deals are viable.
Who qualifies
| Requirement | Threshold | Notes |
|---|---|---|
| Tangible net worth | Under $20 million | Ensures the programme serves smaller businesses |
| Average net income | $6.5 million or less | After taxes, for the prior two years |
| Credit score | 680+ typical | Similar to 7(a) despite the different structure |
| Time in business | 2 years preferred | Some lenders fund younger businesses |
| Equity injection | 10% of project cost | 15% for startups, 20% for special purpose property |
| Owner occupancy | 51%+ for real estate | Owner-occupied or substantially so |
Why 504 beats 7(a) for real estate
The rate advantage is the reason borrowers choose 504 for property. 504 rates are tied to 10-year Treasury yields rather than the prime rate, so they are typically 5%–7% — and they are fixed for the life of the loan.
A 7(a) real estate loan is variable and priced off the prime rate, so it can move against you. For a building you will hold for decades, that difference compounds.
Rule of thumb: real estate and long-lived equipment → 504. Working capital, equipment that wears out fast, or a business acquisition → 7(a). Most owners need both eventually, and the standard structure is a 504 for the asset with a 7(a) covering the cash to operate it.
Common questions
What are the requirements for an SBA 504 loan?
Tangible net worth under $20 million, average net income of $6.5 million or less for the prior two years, typically 680+ credit, 10% borrower equity, and the project must create or retain one job per $90,000 of SBA financing.
What does the 50/40/10 structure mean?
A 504 project is funded by roughly 50% from a conventional bank first mortgage, 40% from a CDC second lien that the SBA guarantees, and 10% borrower equity. Because the bank portion is conventional, it is uncapped, so total project financing can exceed $20 million.
Can 504 loans be used for working capital?
No. 504 financing is restricted to fixed assets — commercial real estate, land, and equipment with a useful life of 10 years or more. Including working capital in a 504 application is a common reason for decline.
Why are SBA 504 rates lower than 7(a) rates?
504 rates are tied to 10-year Treasury yields rather than the prime rate, and they are fixed for the life of the loan. That combination usually lands them around 5% to 7%, below a comparable variable-rate 7(a) loan.
What is the job creation requirement for a 504 loan?
The project must create or retain at least one job per $90,000 of SBA financing, or per $140,000 for certain energy projects. Some projects qualify for a reduced test and certain special purpose properties are exempt.
How much equity does a 504 require?
Typically 10% of the project cost. Startups generally need 15%, and special purpose properties can require 20%.
Do 504 loans require a personal guarantee?
Yes. Owners holding 20% or more of the business generally must sign a personal guarantee, just as with 7(a) loans.
How long does a 504 loan take?
Longer than 7(a) because it involves a CDC as well as a bank, and the CDC structure adds documentation. Expect roughly 60 to 90 days, versus 30 to 45 for standard 7(a).