SBA 504 Loan in 2026: How the Bank, CDC and Borrower Split Works

The SBA 504 loan is how many small businesses stop paying rent and buy their own building, or install machinery that will last a decade or more, with as little as 10% of project cost down and a fixed rate for up to 25 years. It works differently from almost every other business loan: a bank, a nonprofit Certified Development Company (CDC) and you each fund a slice of the project. This guide explains that split, the current debenture limits and rates, the fiscal year 2027 fee schedule, the job creation and owner-occupancy rules, and walks through a $2 million building purchase line by line. It's based on SBA's current rulebook, SOP 50 10 8.1, effective October 1, 2026, and was checked in October 2026.

Quick answer

An SBA 504 loan finances major fixed assets — buildings, land, renovation and long-life equipment — for owner-occupied small businesses. A bank lends about 50%, a CDC lends up to 40% through an SBA-guaranteed debenture with a fixed rate for 10, 20 or 25 years, and you put in at least 10% of project cost. The debenture is capped at $5,000,000 ($5,500,000 for small manufacturers and energy projects).

• Rate on the CDC portion: fixed off Treasury yields; 6.54% for 25 years in September 2026, per a CDC

• FY2027 SBA fees: 0.50% upfront and 0.203% a year, waived for manufacturers, food supply chain and rural businesses

• One job created or retained per $95,000 of debenture, or a qualifying public policy goal

• You must occupy 51% of an existing building or 60% of a new one

• No working capital, inventory or rental real estate

How an SBA 504 loan works: the 50/40/10 split

A 504 project has three funding partners, according to SOP 50 10 8.1: a bank, a CDC and you.

The bank, which SBA calls the Third Party Lender, provides at least 50% of the project cost and takes the first lien. Its loan isn't guaranteed by SBA; it's an ordinary commercial loan, but a safer one because it's only half the project value. The bank sets its own rate and must lend for at least 10 years when the 504 portion is 20 or 25 years (at least 7 years alongside a 10-year 504 loan).

The CDC is a nonprofit certified and regulated by SBA to make 504 loans in its area. It funds up to 40% of the project with a second lien. That money comes from a debenture, a bond that SBA guarantees 100% and sells to investors each month. Because the debenture is government-guaranteed and long-term, the rate is fixed for its full 10, 20 or 25 years.

You put in the rest, at least 10% of project cost. Equity in land or buildings you already own can count toward it when they're part of the project.

The bank usually also provides interim financing to close the purchase or fund construction before the debenture is sold. When SBA sells the next monthly debenture pool, the proceeds pay off the bank's interim loan for the CDC's share. Under SOP 50 10 8.1, the fiscal agent normally sets the rate on the Tuesday after the first Sunday of the month, and debentures are sold and funds disbursed on the Wednesday after the second Sunday.

How much you can borrow and how much you put down

The limit applies to the debenture, not the whole project. Because the CDC funds only up to 40%, a business at the standard cap can finance a project of $12.5 million or more with the bank's help.

SBA 504 limits and equity (2026)

$5,000,000

Debenture cap per business

All 504 loans to you and affiliates

$5,500,000

Per project: small manufacturers or energy projects

SOP 50 10 8.1

10% of project cost

Standard equity

Bank 50% / CDC 40%

20%

New business AND special-purpose property

CDC up to 30%

The equity tiers are:

• 10% of project cost for an established business buying general-purpose property.
• 15% of project cost if the business is a new business (operating two years or less when the loan is approved) or the property is limited or special-purpose, such as a hotel, car wash, bowling alley or other building that's hard to convert. The CDC then funds no more than 35%.
• 20% if both apply, with the CDC funding no more than 30%.

Lenders can ask for more equity or collateral when a project has weaknesses. The small manufacturer limit applies to a business whose primary NAICS code is in sectors 31–33 with all production facilities in the United States. Eligible energy projects are those that cut the facility's energy use by at least 10% or generate more than 15% of its energy from renewable sources, documented by an independent energy audit or engineering report; their debentures don't count against the $5,000,000 limit for your other projects.

SBA 504 loan rates

The CDC rate is fixed when your debenture is sold. SOP 50 10 8.1 says the 10-year Treasury is the usual benchmark for 20- and 25-year debentures and the 5-year Treasury for 10-year debentures. CDCs publish each month's results. Michigan CDC reported September 2026 effective rates of 6.54% for 25 years, 6.53% for 20 years and 6.60% for 10 years, and notes that the effective rate includes the ongoing program fees. The 10-year Treasury was 5.28% on 7 October 2026, for context.

The bank's first mortgage is priced separately. Banks typically quote a fixed rate for 5 to 10 years or a variable rate tied to prime, on a 20- to 25-year amortization. Because the bank holds a first lien at roughly 50% loan-to-value, its 504 pricing is often better than on a conventional loan at 75% or 80%, but that's a negotiation, not a rule. Your blended rate is the weighted average of the two.

SBA 504 fees: the FY2027 schedule and the debenture fee stack

SBA's page says 504 fees total roughly about 3% of the debenture and can be financed. Here's what makes up that figure. Most are added to the debenture, so you pay them over the life of the loan rather than in cash at closing.

The bank participation fee is charged to the bank, but SOP 50 10 8.1 allows the bank, the CDC or the borrower to pay it, so ask who will. Late payments can incur a fee of 5% of the payment or $100, whichever is greater. If you repay the debenture early, a prepayment fee called a repurchase premium applies, calculated under SBA Form 1504; ask your CDC for the schedule before you sign.

Who qualifies: 504 eligibility, jobs and owner occupancy

The basic SBA rules apply: a for-profit operating business, located in the United States, small under SBA's size standards, not an ineligible type, and since March 1, 2026 owned 100% by U.S. citizens or U.S. nationals. Many 504 borrowers use SBA's alternative size standard: tangible net worth of no more than $20 million and average net income after tax of no more than $6.5 million over the last two years. Everyone owning 20% or more gives an unlimited personal guaranty. The CDC must see enough cash flow to repay; SOP 50 10 8.1 says a 504 loan must be declined, regardless of collateral, if cash flow doesn't give reasonable assurance of repayment. Our SBA loan requirements guide covers each test in detail.

The job creation or public policy test

The 504 program is an economic development program, so every project must meet at least one economic development objective. The main one is jobs. Under SOP 50 10 8.1, a project must create or retain one job opportunity for every $95,000 of SBA-guaranteed debenture, or one per $150,000 for a small manufacturer or an energy public policy project. A job opportunity is a full-time (or equivalent) permanent job created within two years of receiving the 504 funds, or retained in the community because of the loan. Retained jobs count, which helps established businesses.

504 job opportunity ratios (SOP 50 10 8.1)

$95,000

Debenture per job, most projects

$150,000

Per job: small manufacturers and energy projects

2 years

Window to create the jobs after funding

If a project falls short, it can still qualify by meeting a community development or public policy goal listed in 13 CFR 120.862, such as revitalizing a business district under a written plan, expanding exports, aiding rural development, increasing productivity and competitiveness, modernizing to meet health, safety and environmental requirements, or cutting energy use. In that case, the CDC's overall portfolio has to meet its own job average. If none of these works, the debenture is reduced until the job ratio is met.

Owner occupancy

Under 13 CFR 120.131, your operating business must occupy at least 51% of the rentable space in an existing building you buy or renovate, and may lease out the rest. For new construction, you must occupy at least 60% immediately, may permanently lease up to 20%, and must plan to occupy the remainder within 10 years. Many owners hold the property in a separate real estate company (an Eligible Passive Company) that leases it to the operating company. That's allowed, but the operating company must still meet the occupancy tests and usually guarantees the loan.

What a 504 can and can't pay for

SBA lists these eligible uses: buying, building or renovating buildings or land; machinery and equipment with a useful life of at least 10 years (SBA now gives project-related AI-supported manufacturing equipment as an example); and refinancing qualified debt, with or without an expansion, under 13 CFR 120.882. Soft costs tied to the project, such as architecture, appraisals, environmental reports and the CDC's fees, can usually be included in project costs.

The ineligible uses are working capital, inventory, refinancing debt that isn't "qualified debt", and speculation or investment in rental real estate. If you need working capital alongside a building, a 7(a) loan can fund both, or you can pair a 504 with a separate line of credit.

Terms follow the asset: up to 25 years for real estate, and a minimum of 10 years for machinery and equipment. When a project mixes the two, the asset category that makes up most of the proceeds sets the maturity.

Worked example: a $2 million building purchase

A family-owned commercial printing company that has operated for 12 years buys the building it rents for $1,700,000 and spends $300,000 on renovation and soft costs, for a $2,000,000 project. It's in a metro area and isn't a manufacturer for SBA purposes, so FY2027 SBA fees apply.

Step 1: the split.

• Bank first mortgage: 50% = $1,000,000
• CDC net debenture: 40% = $800,000
• Owner equity: 10% = $200,000

Step 2: the gross debenture, following the method in SOP 50 10 8.1:

So about $24,000 of fees, roughly 3% of the debenture, is financed rather than paid in cash.

Step 3: payments. At the September 2026 25-year effective rate of 6.54%, the $824,000 CDC loan costs about $5,584 a month, fixed for 25 years, with the ongoing SBA and CDC fees already reflected in that effective rate. For the bank loan we assume 7.25% on a 25-year amortization (an illustration, not a quote): about $7,228 a month. Total debt service is about $12,800 a month, or $153,800 a year. Under SOP 50 10 8.1's minimum debt service coverage of 1.15x, the business needs at least about $177,000 of annual operating cash flow, and the rent it no longer pays helps get there.

Step 4: jobs. $824,000 ÷ $95,000 = 8.7, so the project should create or retain about 9 jobs. The printer has 14 employees whose jobs the expansion secures, so it passes. If it qualified as a small manufacturer, the ratio would be $150,000 and it would also pay no SBA upfront or annual fee in FY2027.

Compare that with a conventional loan at 80% loan-to-value: the owner would need $400,000 down instead of $200,000, and the whole loan would likely reset in 5 or 10 years. For the same purchase financed with a 7(a) loan and a bank loan, see the side-by-side in our business real estate loan rates guide.

How to apply for an SBA 504 loan

From idea to debenture funding

1. 1

   Find a CDC and a bank

   504 loans are available only through CDCs. Find one that serves your area from SBA's list; most have bank partners and can introduce you. Your own bank may already work with a CDC.

   SBA 504 loans and CDC finder
2. 2

   Get a bank term sheet

   The bank's letter of intent or commitment must be in place when the CDC submits the application, setting out the interim and permanent loan terms.

3. 3

   CDC application and SBA approval

   The CDC underwrites the project, prepares the credit memorandum and submits it to SBA's loan processing center. For projects of $5 million or more, SBA also needs the bank's credit memo.

4. 4

   Close the bank loan and interim financing

   You close on the property using the bank's first mortgage plus its interim loan for the CDC share, and complete any construction.

5. 5

   Debenture sale and payoff

   Once the project is complete, SBA includes your debenture in the next monthly sale; proceeds repay the interim loan and your fixed rate is locked.

Expect the process to take longer than a single bank loan, because two lenders and SBA are involved. Ordering the appraisal and environmental report early avoids most delays. Typical documents include three years of business and personal tax returns, interim financial statements, projections, a personal financial statement for each guarantor, the purchase agreement or construction contract, and SBA Form 1244, the 504 application.

SBA 504 vs 7(a) at a glance

Choose 504 when the asset is real estate or long-life equipment and a fixed rate on 40% of the project matters to you. Choose a 7(a) loan when you need working capital or want one lender and a simpler closing. For shorter-lived machines, compare equipment financing options.

Common mistakes and how to fix them

Picking the property before talking to a CDC. Occupancy, special-purpose status and environmental issues can change your equity or kill the deal. Get a CDC's read on the property before you sign a purchase contract, or make the contract contingent on financing.

Counting on rental income. The occupancy tests mean the building has to be mainly for your own use. If your plan depends on tenants paying most of the mortgage, the project probably won't qualify.

Forgetting the job math. A large debenture with few employees needs a public policy goal or a smaller debenture. Work out the ratio early.

Underestimating soft costs and timing. Appraisals, environmental reports and construction overruns are real. Keep cash beyond your equity contribution, because a 504 can't fund working capital.

Ignoring the bank's terms. The CDC rate is fixed, but the bank's 50% may reset or balloon after 5 or 10 years. Read the bank's term sheet as carefully as the CDC's.

Official links

• SBA — 504 loansProgram overview, uses and CDC finder
• SBA — SOP 50 10 8.1504 structure, limits, jobs and fees
• SBA — FY2027 504 fees (Information Notice 5000-881796)Upfront and annual fees, waivers
• 13 CFR 120.131 — Owner occupancy51% and 60% rules
• 13 CFR 120.862 — Public policy goalsAlternatives to the job test

What to do next

Price the property, then model the bank and CDC payments in the loan payment calculator and check that your cash flow covers them at least 1.15x times. Call a CDC in your area before you make an offer. If you're unsure whether 504 or 7(a) fits better, our SBA 7(a) loan guide and business real estate loan rates guide compare them in more depth.

This is general information, not legal or tax advice — confirm on the official source or with a professional.

Frequently asked questions

What is the down payment on an SBA 504 loan?

Usually 10% of project cost of the project cost. It rises to 15% of project cost if the business has operated for two years or less or the property is special-purpose, such as a hotel or car wash, and to 20% if both apply. The bank provides at least 50% and the Certified Development Company finances the rest through an SBA-backed debenture.

What is the current SBA 504 interest rate?

The CDC portion is fixed when SBA sells the debenture each month and is priced off Treasury yields. A certified development company reported September 2026 effective rates of 6.54% for 25 years and 6.60% for 10 years, including program fees. The bank's 50% first mortgage carries its own rate, set by the bank.

What is the maximum SBA 504 loan amount?

The SBA-backed debenture is capped at $5,000,000 per business, including affiliates. Small manufacturers and projects meeting SBA's energy goals can borrow up to $5,500,000 per project. Because the CDC usually funds only up to 40%, total projects can be much larger, with the bank lending the rest.

How many jobs do I need to create for an SBA 504 loan?

Under SOP 50 10 8.1, a project generally needs to create or retain one job for every $95,000 of SBA-guaranteed debenture, or one per $150,000 for small manufacturers and energy projects. Retained jobs count. If you can't meet the ratio, the project can qualify through a community development or public policy goal, or the debenture is reduced.

Can I use an SBA 504 loan for a rental property?

No. SBA says 504 loans can't be used for speculation or investment in rental real estate. Your operating business must occupy at least 51% of an existing building or 60% of a new one under 13 CFR 120.131. You may lease the rest to tenants, within those limits.

Can an SBA 504 loan be used for equipment?

Yes, if the machinery or equipment has a useful life of at least 10 years. A 504 for equipment usually has a 10-year term, and SBA now mentions AI-supported manufacturing equipment as an example. Shorter-lived equipment, working capital and inventory need a different loan, such as a 7(a) or conventional equipment financing.

Sources & verification

Figures on this page were checked against the sources below when it was last reviewed on 11 October 2026. Each rate and limit is stored once with its own official source and review date, and official update channels are monitored daily so changes are picked up. How we verify

1. 1.SOP 50 10 8.1 — Lender and Development Company Loan Programs (effective October 1, 2026) — U.S. Small Business Administration · accessed 11 October 2026
2. 2.Information Notice 5000-881796: 504 Fees for Fiscal Year 2027 — U.S. Small Business Administration · accessed 11 October 2026
3. 3.Information Notice 5000-871532: 504 Fees for Fiscal Year 2026 — U.S. Small Business Administration · accessed 11 October 2026
4. 4.504 loans — U.S. Small Business Administration · accessed 11 October 2026
5. 5.13 CFR 120.131 — Leasing part of the property — eCFR (Office of the Federal Register) · accessed 11 October 2026
6. 6.13 CFR 120.862 — Other economic development objectives — eCFR (Office of the Federal Register) · accessed 11 October 2026
7. 7.Rates and calculator — current SBA 504 rates — Michigan Certified Development Corporation · accessed 11 October 2026
8. 8.H.15 Selected Interest Rates — Board of Governors of the Federal Reserve System · accessed 11 October 2026