What is a 504 Loan?

The SBA 504 loan program is a long-term financing tool, designed to encourage economic development within a community. The 504 program accomplishes this by providing small businesses with long-term, fixed-rate financing to acquire major fixed assets for expansion or modernization.  The 504 program makes it easier for the borrower to obtain favorable financing terms and reduces the risk to the lending institution. 

Typical SBA 504 Loan Structure

• 10% down payment requirement*
• Lending financial institution (bank or credit union) loans 50% of the amount borrowed
• EDF contributes 40% of the financing guaranteed by the SBA
• EDF works with a financial institution to coordinate financing
• The borrower has two separate loans- one with EDF/SBA and one with the lending financial institution

Eligible Purposes

• Purchase of land, buildings, machinery and equipment
• Land improvements
• Renovation or addition to an existing building
• Construction of a new building
• Leasehold improvements
• Ineligible Purposes
• Working or venture capital, goodwill or inventory, cars, trucks or buses
• Ineligible Businesses
• Passive income and real estate companies, financial institution, non-profit businesses and casinos.

*10% down is usually in the form of cash, but existing equity in project land or a facility may count as part, or all, of the contribution. The minimum down payment may increase to 15% for ‘startup’ businesses (less than two years old) and specialized, single-purpose properties (such as a gas station) or increase to 20% for businesses that are both start-ups and single-purpose properties.