504 Loan

Definition of 504 Loan

The SBA's 504 Loan program is a long-term financing tool for economic development within a community. 504 Loans provide growing businesses with long-term, fixed-rate financing for major fixed assets, such as land and buildings.
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Proceeds from 504 loans must be used for fixed asset projects such as: purchasing land and improvements, including existing buildings, grading, street improvements, utilities, parking lots and landscaping; construction of new facilities, or modernizing, renovating or converting existing facilities; or purchasing long-term machinery and equipment.

The 504 Program cannot be used for working capital or inventory, consolidating or repaying debt, or refinancing.

Typically, a 504 project includes a loan secured with a senior lien from a private-sector lender covering up to 50 percent of the project cost, a loan secured with a junior lien from the Certified Development Company (CDC) (backed by a 100 percent SBA-guaranteed debenture) covering up to 40 percent of the cost, and a contribution of at least 10 percent equity from the small business being helped.

The maximum SBA debenture is $1.5 million for meeting the job creation criteria or a community development goal. Generally, a business must create or retain one job for every $50,000 provided by the SBA. The maximum SBA debenture is $2 million for meeting a public policy goal.

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