504 Loan FAQs

The 504 SBA Loan Program provides financing to purchase fixed assets for business expansion and improvements. For construction loans, equipment loans, or commercial real estate loans, SBA 504 financing assists small businesses to grow while retaining working capital. ELCDC partners with local banks to provide up to 90% financing at below market, fixed rates of interest. Give us a call to get started with an SBA 504 loan today.

  1. Financing
  2. Eligibility
  3. Terms & Rates
  4. Collateral
  5. Identification Procedures

Projects are financed through a unique public/private partnership that involves the small business concern, the ELCDC/SBA, and private sector lenders. In the 504 loan structure, the small business concern (applicant) puts up a minimum of 10% of the total funds for a project.  Single-purpose type facilities could require up to an additional 5% down, and new/start-up businesses another 5%.

ELCDC provides up to 40% or $5,000,000 in certain circumstances. The ELCDC/SBA portion of the loan is at a fixed rate for a term of 10 or 20 years. The bank portion of the loan is at market rates and terms, negotiated between the small business and the bank.

The ELCDC/SBA portion of the financing is actually funded by the sale of a 100% federally guaranteed debenture on the open market. The SBA 504 program is a take-out financing program. ELCDC/SBA offers an up-front commitment to finance a project. The participating private lender provides interim financing, advancing up to 90% of the total project funds during the construction/acquisition period.


Typical candidates for 504 loans are businesses that are for-profit, healthy, and have a track record of growth. The company must be a small business with a tangible net worth of less than $15 million and an average annual net income after taxes of less than $5 million.

New jobs must be created (or in some instances, job retention will suffice) as a result of the new fixed assets being financed. The rule of thumb is that a project must create one new job for every $65,000 of the debenture. Qualified small manufacturing firms must create one job for every $100,000 of debenture financing.

However, projects with a high community impact and low direct job impact may be considered when achieving a  Community Development or Public Policy goal (for further definition of these goals please contact us).

Start-up businesses may also be eligible, if, the small business  concern can demonstrate that it has:

  • Qualified management with related industry experience,
  • A strong business plan backed by thorough research and well-based financial protections,
  • Access to an adequate amount of working capital, and
  • A 15% (or greater) equity contribution.

Terms & Rates

SBA 504 loans carry a fixed rate of interest, which is determined at the time the debentures are sold.

10-year terms are allowed for equipment purchases and 20-year or 25-year terms for real estate; loan terms are based on the type of assets financed, with the requirement that the useful life of the assets must equal or exceed the loan term. 

The private lender’s loan must carry a minimum term of 7 years for projects involving machinery and equipment, and 10 years for projects involving real estate.

In either case, the private lender must provide a “comfort letter” to ELCDC/SBA that any balloons on the bank’s portion of the financing will be refinanced, barring any late payments or adverse change in financial condition of the small business concern.

The private lender’s loan may be fixed or variable, with a rate that is “legal and reasonable.”


SBA 504 loans are typically secured by a lien on fixed assets acquired with loan proceeds to reasonably assure loan repayment.

The SBA’s lien is subordinate to the private lender’s position.

In addition, the SBA requires the personal guaranties of the principal with 20% or more ownership and/or a key management position. Owners/principals with between 5% and 20% ownership may be required to guarantee, as well.

Identification Procedures


To help the government fight the funding of terrorism and money laundering activities, Federal law requires all Certified Development Companies to obtain, verify, and record

information that identifies each person who applies for a 504 Loan.

What this means for you: When you apply for a 504 Loan, we will ask for your name, address date of birth and other information that will allow us to identify you. We may also ask to see your driver’s license or other identifying documents.