How do you qualify for an SBA 504 loan?
An SBA 504 loan finances major fixed assets — commercial real estate, heavy equipment, or large machinery — through a structure that pairs a Certified Development Company (CDC) with a private lender. To qualify, your business must be for-profit, operate in the U.S., have a tangible net worth under $20 million, and have average net income below $6.5 million after taxes for the prior two years. You also need to demonstrate that the project creates or retains jobs, or meets a community development goal. Start your 504 application through ClearValue Lending to get matched with the right lender for your project.
The SBA 504 loan program is designed for long-term fixed asset financing — owner-occupied commercial real estate, manufacturing equipment, and similar capital investments. It's structured as two loans: a first-position mortgage from a private lender (typically 50% of the project), and a second-position debenture from a CDC (up to 40%), with the borrower putting in at least 10%. Full program rules are published on SBA.gov's 504 loan page.
Eligibility requirements
- For-profit business operating in the United States.
- Tangible net worth under $20 million (check the current SBA figure — it is subject to regulatory update).
- Average net income after federal taxes under $6.5 million for the two years before application (also subject to update — verify at SBA.gov).
- The financed assets must be used primarily by the business (owner-occupied for real estate).
- The project must meet a public policy goal: job creation or retention is the most common, but energy efficiency, rural development, and veteran-owned business goals also qualify.
- The business must have management experience relevant to the project and a reasonable prospect of repayment.
What the 504 covers — and what it doesn't
- Covered: purchase of owner-occupied commercial real estate; construction or renovation of facilities; purchase of long-life machinery and equipment (useful life 10+ years).
- Not covered: working capital, inventory, debt refinancing (with limited exceptions), or investment real estate.
- Soft costs like title, appraisal, and environmental assessments may be included in the project up to a limit — confirm with your CDC.
- Maximum CDC debenture is $5.5 million for standard projects and up to $5.5 million per qualifying energy or manufacturing goal.
SBA 504 program figures
- The SBA 504 program has historically been one of the largest SBA loan programs by total dollars approved — the SBA publishes year-to-date approval data on its website by loan type and state. — SBA — 504 Loan Program Summary
- CDC debentures issued under the 504 program are sold to investors in pools through the SBA — this pooling structure is what keeps 504 rates competitive relative to conventional commercial real estate loans. — SBA — How 504 Loan Debentures Work
- SBA regulations set the net worth and income caps for 504 eligibility in 13 CFR Part 120 — the operative figures are verified at SBA.gov and can change with rulemaking. — SBA — 504 Loan Eligibility (13 CFR Part 120)
Key takeaways
- 504 loans are for fixed assets only — real estate, heavy equipment, major improvements — not working capital.
- The 50/40/10 structure means your down payment can be as low as 10%, which is lower than most conventional commercial loans.
- Net worth under $20 million and average net income under $6.5 million after taxes are the two primary size gates — verify current figures at SBA.gov.
- A CDC, not your bank, originates the SBA portion; a platform that knows both sides of the deal simplifies the application.
- Job creation or retention is the most common public policy goal — document it early because CDCs require it.
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