The 504 program provides growing businesses with long-term, fixed-rate financing for major fixed assets, such as land, buildings, machinery and equipment. The Certified Development Corporation is a non-profit corporation set up to contribute to the economic growth of its community. The CDC works in conjunction with the SBA and private sector lenders to provide small business financing. To be eligible, a business must be operated for profit and fall within the size standards set by the SBA. Under SBA 504, a business is defined as a company that does not have tangible net worth in excess of $8.5 million and does not have an average net income in excess of $3.5 million, after taxes, for the preceding two years.

How Financing Is Structured
A bank or other lender finances 50% of the project cost and takes a first mortgage (lien) position on the assets financed. RBAC, through the SBA 504 loan, finances up to 40% of the project cost and takes a second mortgage position. The borrower then contributes a downpayment of as little as 10%.

Typical Project Example
For a $1,000,000 project, the borrower needs to provide 10% of the project costs ($100,000), the SBA/CDC (RBAC) contributes funding for 40% of the loan ($400,000) with the remaining 50% ($500,000) coming from a bank.

Start-up Costs

Purchase Building $ 800,000
Renovations $ 100,000
Machinery $ 50,000
Soft Costs $ 50,000   Includes appraisal, architect fees and closing costs
TOTAL: $ 1,000,000
Bank - First Mortgage $ 500,000   Permanent Loan (%50)
SBA 504 - Second Mortgage $ 400,000   Permanent Loan (%40)
Down Payment $ 100,000   (10%)*
TOTAL: $ 1,000,000

* An additional 5% down payment is required for certain projects like special purpose buildings (ie. car wash, hotel) or for start up businesses. For both a new business and a special purpose building, the down payment is 20% The seller can provide the 50% permanent financing but, under current regulations, the seller must be co-equal to or subordinate to the SBA 504 loan. The 50% first mortgage can come from a variety of nonfederal sources such as banks, nonbank institutions or government agencies.


  • All related soft cost such as architectural fees, appraisal of real property or machinery, environmental studies, or contingency interest can be rolled into the loan.
  • Standard financing requires: 10% injection.
  • If start up business, borrower is required to commit extra 5% (total of 15% initial injection).
  • If building is also a non-conventional building i.e gas station, hotel, borrower is required to commit an extra 5% (total of 20% initial injection).
  • Under the 504 program, loans cannot be made to businesses engaged in speculation or investment in rental properties.

Key Advantages of SBA-504 Loan Over Traditional Business Loans

  • A minimal down payment by the small business owner, as low as 10%, borrowing up to 90% of the total financing needs, thus preserving cash for the business.
  • Long term financing, over 10-20 years, which enhances the cash flow of the company and avoids balloon payments and mid- term negotiation of the loan that may result in higher interest rate and payments, the borrower’s monthly loan payment is more affordable.
  • Below Market fixed interest rates on 504 debentures.
  • Projected income consideration – SBA lenders consider projected income of a business in addition to historical cash flows. This is particularly advantageous for growing businesses.


Fresh Produce Wholesale Distributor

The proceeds were used to finance the acquisition of land and a building to support expansion of the business. The owners were able to ONLY put down 10% because this was an already existing business. This preserved the cash for working capital within the business.

Manufacturer and Distributor of Pharmaceutical Products

In this case, the breakdown of the proceeds also reflects the 50, 40, 10 structure of the SBA 504 Program. The company purchased a larger facility for manufacturing and distribution purposes. This project allowed the firm to manufacture new products and grow the customer base.


Industrial Printing Company

Under the SBA 504 program, it is also possible to acquire “hard equipment.” In general these are machines with a long life span. A family owned company stopped outsourcing some of its services to other firms and decided to capture that income as well. For this, the purchase of a large sized printing press was necessary, which had a purchased and installed cost of $1,800,000. The firm will generate more revenues and provide extra services to its customers.