The short answer
A 504 project needs a bank loan at least as large as the SBA debenture, usually half the cost, a certified development company that packages the SBA debenture of up to 40 percent, and a borrower contribution of at least 10 percent, rising to 15 or 20 percent for a new business or a special purpose property. Bring the bank's term sheet, an itemized project cost, three years of financials, owner statements and an appraisal.
Who is in a 504 project
A 504 project has three parties. A bank, called the third-party lender, makes a loan, usually in first-lien position, for 50 percent or more of the cost. A certified development company (CDC) packages a debenture, usually in second-lien position, for up to 40 percent, which SBA guarantees in full. The borrower puts in the rest.
Typical 504 structures, as a share of project cost
| Standard | New business or special purpose property | Both | |
|---|---|---|---|
| Bank | 50% | 50% | 50% |
| Development company debenture | 40% | 35% | 30% |
| Borrower | 10% | 15% | 20% |
A new business is one in operation for two years or less. A change of ownership can count as new if it brings unproven management and new debt. The SOP’s list of special purpose property includes hotels, car washes, gas stations, farms, marinas and nursing homes. No more than half of project cost may come from federal sources.
Step 1: the bank’s letter, then the development company
The bank must be in place when the CDC sends the request to SBA. The CDC needs its letter of intent, term sheet or commitment letter, and the letter must say why the bank will not finance the whole project. The SOP sets conditions on the bank’s loan:
- It is at least as large as the net debenture, and at least half of project cost when the borrower is a new business or the property is special purpose.
- Its term is at least 7 years for a 10-year debenture and 10 years for a 20- or 25-year one.
- It carries no cross-default, “deem-at-risk” or other term that lets the bank demand payment before maturity unless the loan is in default.
- Any additional collateral the bank takes must be worked out no later than the project property, and its proceeds go to the bank’s loan first.
When total project cost is $5,000,000 or more, the bank’s own credit memo or underwriting analysis also goes to SBA, through the CDC or directly. Every 504 loan is processed at SBA’s Sacramento center. A CDC with Premier Certified authority may take a request that another CDC in its area declined or the borrower withdrew, unless SBA has already declined it.
Step 2: the project cost sheet
SBA reads cost line by line, so bring numbers that can be itemized.
- The signed purchase agreement, or the contractor’s bid and the plans.
- Vendor quotes for equipment that has a useful life of at least 10 years.
- An itemized list of soft costs: title, survey, zoning, appraiser, architect and project legal work, but not the legal fees for closing the bank’s loan.
- Any project cost the borrower already paid, since the interim lender can reimburse it.
- A contingency of no more than 15 percent of construction cost, if the project builds.
- For land held two years or more, an appraisal. Land bought in the last two years counts at cost.
Working capital and inventory are not on the eligible list, and receivables and goodwill are named as ineligible. Where a business purchase includes them, they are financed another way, often a 7(a) loan. When a combined request goes to SBA, the 7(a) is processed first.
Step 3: the borrower file
What the development company collects from the borrower
| Item | Detail |
|---|---|
| SBA Form 1244 | The 504 request form; the CDC lists 100 percent of owners |
| Form 413 | Signed and dated within 90 days, with the last year’s federal tax return, from each 20 percent owner and each guarantor except a supplemental guarantor |
| Credit reports | The CDC pulls them, dated within 90 days, on the 20 percent owners and the guarantors |
| Financials | Balance sheets, income statements and tax returns for 3 years (industry size standard) or 2 years (alternative), or the years in business if fewer |
| Interim | Balance sheet and income statement within 120 days, with aging of receivables and payables |
| New business | A pro forma balance sheet, 2 years of projections, and 12 months of cash flow, or 3 months past break-even if longer |
| Debt and affiliates | A debt schedule, a list of earlier government financing, and affiliates’ statements |
| IRS | Form 4506-C or 8821 signed now; transcripts are not needed until closing |
SBA’s coverage floor is 1.15 to 1 on history, measured as earnings before interest, taxes, depreciation and amortization over all debt service after the deal. A fully drawn line counts as interest only. If history falls short, the CDC needs two years of projections, and if the second year works but the first does not, proof of liquidity to cover the gap.
Looking for a lender now? Find lenders for this in your state or see SBA 504 lenders state by state.
Step 4: the property reports
- Appraisal. One is required above $500,000 of estimated value, and below that in set cases: land equity held two years, bank-owned property, a related-party deal, seller financing in the contribution, or a change of ownership. A State-certified appraiser is needed above $1,000,000. The report is dated within 12 months of the request and names SBA as client or intended user. For new construction or a rehab above one-third of price it gives the value when complete. Where the property is special purpose, the appraiser must know the industry.
- If the value falls short. An appraisal under 90 percent of the estimate cuts the debenture, or needs more equity or collateral. Related-party and change-of-ownership deals must appraise at 100 percent of the estimate.
- Environmental. The same steps as a 7(a) loan: a questionnaire up to $250,000, a records search above that, and a Phase I for sensitive industries.
- Occupancy. The borrower must occupy 51 percent of an existing building or 60 percent of a new one. A CDC may not send the closing package unless the borrower will be in place, unless SBA agreed in advance and in writing.
- Title. Lien position is shown by a title policy. If the policy lets either side demand arbitration, an endorsement must remove it.
Step 5: guaranties and collateral
Owners of 20 percent or more guarantee the loan in full. SBA usually takes a second lien and treats it as adequate, but leasehold improvements count for little. If business assets do not fully secure the loan, personal assets can be pledged. A business that depends on one owner and is not fully secured may need life coverage on that owner, assigned to the lender.
Step 6: closing, timing and fees
The bank or another independent source funds the interim loan; the borrower or an associate cannot, and it cannot cover the borrower’s contribution. The project must be finished before the debenture is sold, with a narrow escrow exception. Debentures are normally sold on the Wednesday after the second Sunday of each month, so plan the closing package around that date. The rate is set at the sale from market yields on long-term government debt, and the fiscal agent negotiates it with underwriters. The debenture is priced when the request is made and re-priced if costs change. Unused contingency above 2 percent of the debenture cuts the debenture.
Fees on a 504 project, fiscal year 2027
| Fee | Rate | Note |
|---|---|---|
| CDC processing | Up to 1.5% of net debenture | May be financed |
| Closing | Reasonable; up to $10,000 may be financed | Legal and closing costs |
| Underwriter | 0.4% of gross debenture (10-year: 0.375%) | Financed |
| Funding | 0.25% of net debenture | Financed |
| SBA guaranty, one time | 0.50% | Waived for manufacturers, listed food supply chain codes and rural areas |
| SBA annual service | 0.203% of balance | Same waivers; 0.204% on refinancing without expansion, see the notice |
| CDC servicing, yearly | 0.625% to 2% | Over 1.5% rural or 1% elsewhere needs SBA consent |
| Bank participation, one time | 0.50% of the bank’s loan | Bank, CDC or borrower pays |
| Deposit at the start | Up to the smaller of $2,500 or 1% of net debenture | Refunded within 10 business days if declined |
Worked example (hypothetical). A veterinary practice, in business for years, in a non-rural area, buys a $2,000,000 building, so the SBA fees are not waived. The bank lends 50 percent, $1,000,000. The net debenture is 40 percent, $800,000, and the borrower puts in 10 percent, $200,000. The SOP’s pricing model builds the gross debenture: $800,000 net, plus $4,000 SBA fee (0.5%), $2,000 funding fee (0.25%), $12,000 CDC processing fee (1.5%) and an assumed $2,500 of closing costs, is $820,500. Divide by 0.996 for a 20- or 25-year debenture: $823,795. Round up to the next even thousand: a gross debenture of $824,000. The underwriter’s fee is 0.4% of that, $3,296. Everything adds to $823,796, so $204 is left over for the borrower.
Refinancing, and buying out an owner
A 504 loan can refinance debt in two ways. Refinancing with expansion can include existing debt up to 100 percent of the cost of the expansion. With expansion, the borrower must have been current on the old debt for a year. Refinancing without expansion requires that 75 percent or more of the old debt bought fixed assets, that it was fully disbursed and secured at least 6 months, and that the business has operated 2 years. Loan to value is capped at 90 percent. A change of ownership may finance only fixed assets, must create or keep jobs, must leave one buyer with 100 percent, and the seller cannot stay as officer, director, stockholder or key employee.
What the public record can and cannot tell you
For Oct 2023 through Sep 2026, the SBA file shows 11,054 funded 504 loans, with a middle bank first lien of $820,000. It names the bank and the development company on each project. It does not show the borrower’s contribution, the appraisal or why a project was sized as it was. 76% SBA FOIA, of those loans went through a development company with Accredited Lenders authority. See how SBA lenders differ.
What this guide does not promise
Having every item does not mean a bank or CDC will go forward. SBA sets minimums; the bank and CDC set their own terms, and none of that is published.
Terms used here
- SBA 504 loan: A fixed-asset financing in which a bank lends 50 percent or more, a certified development company funds up to 40 percent through an SBA debenture, and the borrower puts in at least 10 percent.
- Certified development company (CDC): A lender certified by SBA to package, close and service 504 loans and to issue the debenture that funds up to 40 percent of a project.
- Third-party lender (SBA 504): The bank or other lender that makes the first-lien loan, usually about half the project cost, in an SBA 504 project. SBA does not guarantee its loan.
- Debenture (SBA 504): The bond a certified development company issues to fund SBA's share of a 504 project. SBA guarantees it in full, and debentures are normally sold once a month.
- SBA occupancy requirement: The rule that a business using SBA money on real estate must occupy at least 51 percent of an existing building, or 60 percent of a new one, and may lease out the rest within set limits.
- SBA collateral requirements (7(a)): SBA's rules for what a 7(a) lender must take as collateral and how each asset counts, such as improved real estate at 85 percent of value. A request must not be declined only for thin collateral.
- SBA Form 413 (Personal Financial Statement): SBA's personal financial statement. Each 20 percent owner and each guarantor except a supplemental guarantor gives one, or the lender's own equivalent, signed and dated within 90 days.
- SBA Form 159 (fee disclosure): The form that discloses to SBA any fee paid to an agent such as a packager or broker, and a lender fee above $2,500, with the compensation agreement behind it.
Sources
Every rule and outside figure above comes from one of these, opened on . Dates are the source's own. Figures from this site's data carry their own source and date beside them.
- SBA SOP 50 10 8.1, Lender and Development Company Loan Programs (Section A, Chapters 1 to 5; Section C, Chapters 1 to 3), effective .
- SBA Information Notice 5000-881796, 504 fees for fiscal year 2027, published .
- 13 CFR 120.910 and 120.930, borrower contribution and 504 loan amount, retrieved .
- 13 CFR 120.971, allowable fees paid by the borrower, retrieved .
- 13 CFR 120.862, other economic development objectives, retrieved .
- 13 CFR 120.848, 504 processing by Premier Certified Lenders Program CDCs, retrieved .
Next step: check the record
- Loan Comps for the 504 example in this guideA $1,000,000 bank first lien for a veterinary practice's building in Ohio is the example below. Change the industry, state and amount to yours.
- SBA 504 lenders by projectsThe banks named as third-party lenders on 504 projects, with the method printed above the table.
- SBA 504 development companies by projectsThe certified development companies behind those projects, so you can see who works in your area.
Keep reading
- SBA 504 structure calculator: Bank loan, debenture and down payment for a project, and the fees that sit around them.
- SBA 7(a) loan package checklist: A 7(a) package is the bank's usual file plus SBA's own list. Know which items SBA requires and you can have them ready before the first call.
- SBA 7(a) or 504: which fits your loan: Both are SBA loans, and they work differently. The choice usually turns on what you are buying and how much cash you can put in.
- SBA Preferred Lenders Program and Express: how they differ: Some SBA lenders decide a loan on their own authority and some send it to SBA first. The difference changes who reads your file and who carries the risk.
- How to read SBA 7(a) and 504 loan data: The SBA publishes the 7(a) and 504 loans it guarantees, lender by lender, every quarter. It is the best public record of who lends to small businesses, and it is easy to misread.
- Owner-occupied commercial real estate loan checklist: When a business borrows on the building it works in, the lender is underwriting the business first and the building second. The package has to prove both.
Questions people ask
Does a 504 project have to create jobs?
It must meet at least one economic development objective. The usual one is one job created or retained for each $95,000 of SBA debenture, or $150,000 for a small manufacturer. A project can instead meet a community development or public policy goal in 13 CFR 120.862 if the development company's whole portfolio meets its job average.
Can a 504 loan pay for working capital?
Not as a rule. The SOP's list of eligible costs is land, buildings, equipment, soft costs tied to the project, interim financing and a contingency fund. The exception is refinancing without expansion, which can include business expenses such as unpaid operating costs.
Cite this
Source: The Lender Report, SBA 504 loan package checklist, https://lender.report/guides/package-checklist-sba-504/, data as of November 9, 2026.
General information, not legal, tax or credit advice. A lender's own policy decides what it will do; ask it for the policy in writing.
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Source and date appear beside each figure. Banks report balances, not loans made. Loans made come only from HMDA and SBA files. We do not audit filings and can make errors joining them. Report a problem