How to Qualify for an SBA 504 Loan
The Complete 2025 Guide
If you're a small business owner looking to purchase real estate, equipment, or fund expansion projects, the SBA 504 loan program offers attractive financing options. But before applying, it's crucial to understand the qualification requirements. Let's break down exactly what you'll need to qualify for this government-backed loan program.
Who Can Apply for an SBA 504 Loan?
The SBA has established clear eligibility criteria for businesses seeking 504 loans. First and foremost, your business must operate as a for-profit entity within the United States. Nonprofit organizations don't qualify for this particular program.
Your business finances will need to meet specific thresholds:
- Your company's tangible net worth must be under $15 million
- Your two-year average net income (after taxes) can't exceed $5 million
- You must meet the SBA's size standards for your particular industry
There are also important usage restrictions to note. The SBA wants to ensure these loans go toward productive business purposes, so they exclude certain activities like passive real estate investments, lending operations, gambling businesses, and political organizations.
What Projects Qualify for 504 Financing?
The SBA 504 program is specifically designed to help businesses acquire fixed assets that will help them grow. Approved uses include:
- Purchasing land or existing buildings for your business
- Constructing new facilities
- Buying long-term equipment (with at least 10 years of useful life)
- Renovating or modernizing your current facilities
- Implementing energy-efficient upgrades (for green projects)
However, there are clear limitations on how you can use these funds. The SBA won't approve 504 loans for:
- Working capital needs
- Inventory purchases
- Most types of debt refinancing
- Rental real estate investments
Understanding the Lender Requirements
The 504 loan program involves a unique three-party structure:
- A traditional bank or lender provides 50% of the financing
- A Certified Development Company (CDC) covers 40%
- The business owner contributes the remaining 10%
CDCs play a special role in this process. These SBA-approved nonprofit organizations must meet specific standards, including having professional management teams and adequate staffing to properly administer the loans.
What Happens After You're Approved?
Getting your 504 loan is just the beginning. Borrowers have ongoing responsibilities they need to maintain, including:
- Keeping hazard insurance that covers the full loan amount
- Providing annual financial statements and tax returns to the SBA
- Getting SBA approval before making any ownership changes
- Staying current on all property tax payments (for real estate loans)
- Avoiding additional debt that uses the same collateral without SBA permission
Current Loan Terms and Application Process
For 2025, the SBA 504 program offers:
- Loan amounts up to $5 million (or $5.5 million for manufacturing projects)
- Fixed interest rates tied to Treasury rates
- Repayment terms of 10, 20, or 25 years
- Typical down payments of just 10%
The application process begins by contacting a Certified Development Company in your area. They'll guide you through the paperwork, which includes providing financial documents, project details, and other required information. While the process takes some time, the favorable loan terms often make it worthwhile for qualifying businesses.
Ready to Apply for Your SBA 504 Loan
If your business meets these requirements and you're considering financing for:
- Commercial real estate purchases
- Equipment acquisitions
- Facility construction or renovations
Next Steps:
- Review the full eligibility checklist above
- Gather your financial documents
- Contact an SBA-approved Certified Development Company
For Oklahoma businesses, MADCO serves as your local CDC partner for SBA 504 loans. Our team can help determine if this program fits your project needs.
📞 Call now: 405-424-5181
📩 Email: jtaylor@madco.net
📍 Visit: 1144 NW 50th St., Oklahoma City, OK
Note: This program is available nationwide through SBA-approved CDCs.