SBA 504 Loans — Structure, Rates and Terms Explained

The 50/40/10 structure, the fixed-rate portion, and the hard limits on use.

A 504 loan is not a single loan. It is a structure — and once you can see the structure, the rates and the rules stop being confusing.

The 50/40/10 split

A typical 504 project is funded in three pieces:

• ~50% senior lender. A bank or credit union, first lien, priced at that bank's own commercial rate, fixed or variable.
• ~40% CDC debenture. A Certified Development Company — an SBA-authorised nonprofit — funds this portion, second lien, at a long-term fixed rate. This is the part people mean when they talk about "504 rates".
• ~10% borrower injection. Your money. It goes up for a startup or a special-purpose property, which is why some projects need 15% or 20%.

SBA's stated 504 maximum is $5.5 million. Note that is the SBA portion ceiling, not the project ceiling — total project cost can be considerably larger once the senior lender's half is counted.

What the fixed rate is actually pegged to

The CDC portion is funded by selling debentures to investors, so its rate tracks the yield on those debentures at the time of sale — effectively a spread over comparable Treasury yields — and is then fixed for the life of the loan, typically 20 or 25 years on real estate. Two consequences worth understanding. First, no honest page can quote you today's 504 rate as a durable fact, because it is set at debenture pricing. Second, when rates are falling, borrowers who lock a 504 debenture are locking for two decades, which is the single strongest argument for the program.

What 504 money can and cannot buy

SBA is unusually strict here, and getting this wrong wastes weeks. Permitted: purchase, construction or renovation of existing buildings or land; long-term machinery and equipment with a remaining useful life of at least 10 years; and refinancing debt that meets the "qualified debt" definition in 13 CFR 120.882.

Not permitted: working capital or inventory; consolidating or refinancing debt that does not meet that qualified-debt definition; and speculation or investment in rental real estate. If your project is mostly working capital, you are looking at the wrong program — that is 7(a).

504 or 7(a)?

Rule of thumb: 504 for long-lived fixed assets you will own for a decade — the building you operate from, a press with a 20-year life. 7(a) for everything mixed — a purchase that includes working capital, inventory, debt refinance or goodwill. 504 gives a better fixed rate on the right project and less flexibility on the wrong one.

How to apply

504 loans are available exclusively through Certified Development Companies. SBA publishes a CDC finder, and a CDC will help assemble the senior-lender side of the structure. We can place the senior debt and run the file in parallel so the two halves do not wait on each other.

SBA program rules on this page were read from sba.gov on 1 September 2026 (7(a), 504 and microloan program pages). Program terms are set by the SBA and can change; lender pricing and credit policy are set by each lender. Program guidelines shown are our lending partners' published minimums as of September 2026 and can change. They are qualification floors, not an offer. General information about commercial finance products, not financial, legal or tax advice for your situation.