SBA 504 Loan vs Conventional Commercial Mortgage 2026

SBA-approved banks + Certified Development Companies (CDCs)

SBA 504 Loan

Owner-occupied commercial real estate at 10% down with a long-term fixed rate on the CDC tranche.

• Down payment: As low as 10%
• CDC rate: Fixed, below-market
• Loan term: 10, 20, or 25 years
• Max project size: Up to $16.5M

Pros

• Low down payment preserves operating capital — 10% down vs 20–30% for conventional
• Fixed rate on the CDC tranche for the full 10-, 20-, or 25-year term — no balloon payment on that portion
• Fully amortizing CDC loan — no refinance risk at maturity
• Available for both real estate and major long-lived equipment (10-year term for equipment)

Apply for an SBA 504 Loan →

Banks, credit unions, commercial real estate lenders, and CMBS conduits

Conventional Commercial Mortgage

Flexible commercial real estate financing — no SBA eligibility required, investor properties allowed.

• Down payment: 20–35%
• Rate range: 6.5–10% typical
• Amortization: 20–30 years, balloon
• Eligible properties: Owner-occupied + investment

Pros

• No SBA eligibility rules — available to investors, larger businesses, and non-owner-occupied properties
• Faster close than SBA 504 — no CDC involvement; typical close in 30–45 days
• Flexible property types: investment, multi-tenant, mixed-use, and non-standard properties
• Single lender relationship — simpler structure than the 504 bank + CDC two-tranche model

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The standard SBA 504 structure requires only 10% down from the borrower, with a bank providing 50% as a first mortgage and a Certified Development Company (CDC) providing 40% as a debenture. Startups (businesses under 2 years old) and special-use properties (gas stations, hotels, car washes) typically require 15–20% down. Compare to conventional commercial mortgages, which require 20–35% down depending on property type and lender. The capital-preservation advantage of 504 financing is significant: a $1.5M property requires $150K down under 504 vs $300K–$525K under conventional terms. Source: sba.gov/funding-programs/loans/504-loans.

SBA 504 is available to for-profit businesses with a tangible net worth under $15 million and average net income under $5 million after taxes for the two prior years. The business must occupy at least 51% of an existing building (or 60% of new construction) being financed — investment real estate and rental properties don't qualify. The business must also operate in the U.S. and fall within SBA size standards for its industry. Passive investment entities, financial businesses, and a few other categories are excluded. Full eligibility criteria are at sba.gov/funding-programs/loans/504-loans.

SBA 504 loans typically close in 60–90 days because they involve two lenders (the bank and the CDC) plus SBA approval. Conventional commercial mortgages close in 30–45 days with a single lender and no government guarantee layer. If timeline is the primary concern — for example, a seller requiring a 30-day close — a conventional commercial mortgage is more practical. Many businesses use a conventional bridge loan to close quickly, then refinance into a 504 once the transaction is complete, though this adds closing cost.

No. SBA 504 is restricted to owner-occupied commercial real estate — the borrowing business must occupy at least 51% of an existing building or 60% of new construction. Investment real estate, rental properties, and multi-tenant properties where the business doesn't occupy a majority of the space are not eligible. For investment commercial real estate, a conventional commercial mortgage is the appropriate product. This owner-occupancy requirement is the single most common reason businesses that otherwise qualify are directed to conventional financing instead of 504.

SBA 504 loans use a fixed rate on the CDC (SBA-backed) portion, which is set monthly based on U.S. Treasury rates. Historically, the effective blended rate on a 504 loan has been competitive with — and sometimes below — conventional commercial mortgage rates for equivalent borrowers. Conventional commercial mortgages may offer variable rates that start lower but reset periodically, introducing refinance risk. The SBA 504 rate advantage is most pronounced for borrowers who might otherwise pay a spread above prime with a conventional lender. Current CDC debenture rates are published monthly at sba.gov. The bank portion of a 504 loan carries a separately negotiated rate.

Yes — the SBA 504 refinancing program (504 Refi) allows eligible businesses to refinance existing commercial real estate debt into a 504 structure, potentially converting a variable-rate conventional mortgage into a long-term fixed-rate loan. To qualify, the property must be owner-occupied, the existing debt must be on eligible collateral, and the refinancing must result in at least a 10% improvement in debt-service costs. The SBA 504 Refi is not available for investment or non-owner-occupied properties. See the current eligibility requirements at sba.gov/funding-programs/loans/504-loans.