What Is an SBA 504 Loan?

If you're looking to finance major business purchases like commercial real estate or heavy equipment, the SBA 504 loan program might be your ideal solution. This government-backed program offers unique advantages that conventional loans can't match. Let's break down exactly how it works.

At its core, the SBA 504 program provides long-term, fixed-rate financing specifically designed to help small businesses acquire major fixed assets that promote growth and job creation. What makes it unique is the three-way partnership structure:

1. A Certified Development Company (CDC) provides 40% of the financing
2. A traditional lender covers 50% of the project cost
3. The business owner contributes just 10% as a down payment



This structure allows for significantly lower down payments than conventional commercial loans, while offering the stability of fixed interest rates for the life of the loan - typically 10, 20, or 25 years depending on the asset being financed.

The SBA has set clear eligibility requirements for the 504 program. To qualify, your business must:

• Be a for-profit company operating in the United States
• Have a tangible net worth under $20 million
• Show average net income below $6.5 million (after taxes) for the past two years
• Demonstrate the ability to repay the loan through business cash flow
• Meet the SBA's size standards for your particular industry

It's important to note that certain business types are excluded, including nonprofits, passive real estate investors, and speculative ventures.

The 504 program is quite specific about how funds can be used. Approved uses include:

• Purchasing land or existing buildings
• Constructing new facilities
• Acquiring long-term machinery and equipment (with a useful life of 10+ years)
• Modernizing or improving existing facilities and infrastructure
• Renovating current business premises

However, there are important restrictions. You cannot use 504 loans for working capital, inventory purchases, or refinancing most types of existing debt. The funds also can't be used for investment in rental real estate or other speculative activities.

Applying for a 504 loan requires working through a Certified Development Company. Here's what to expect:

1. First, you'll need to locate a CDC in your area (they're SBA-approved nonprofits that specialize in these loans)
2. You'll complete an application that includes detailed information about your business and project
3. The CDC will review your application and work with you to assemble the complete package
4. Your application goes through an approval process with both the CDC and SBA

The entire process typically takes several weeks to a few months from start to funding. Having all your financial documents organized can help speed things along.

One of the most attractive features of 504 loans is their repayment structure:

• Fixed interest rates that won't fluctuate with market changes
• Long repayment terms (up to 25 years for real estate)
• No balloon payments
• Multiple payment options (ACH, wire transfer, or check)

Borrowers should be aware that there are fees associated with these loans, typically totaling about 3% of the loan amount. These can often be financed as part of the loan rather than paid upfront.

For businesses looking to make major investments in their future while maintaining stable, predictable payments, the SBA 504 program offers a compelling financing solution worth considering.

Navigating SBA financing can be complex, but you don't have to do it alone. MADCO's team of experts simplifies every step of the 504 loan process for Oklahoma businesses, offering:

• Local Oklahoma expertise - We know our state's business landscape intimately
• Dedicated loan specialists - Get one-on-one guidance from application to closing
• Manufacturing focus - Specialized support for the Made in America initiative
• Proven track record - Decades of helping businesses like yours grow

Your next step is simple:

📞 Call now: 405-424-5181

📩 Email: jtaylor@madco.net

📍 Visit: 1144 NW 50th St., Oklahoma City, OK