The Small Business Administration's 504 Loan Program provides small companies in development areas with guarantees for loans for major fixed assets, including real estate and equipment. This is an economic development program, so to qualify for this loan you must be in one of these areas.

These 504 loans are not available for working capital, purchase of inventory, debt consolidation, or for the purpose of real estate development.

The SBA provides more details on the types of loans that are eligible and ineligible for the 504 loan program.

Why 504 Development Loans?

The purpose of 504 loans is to improve the economy of a local area or to assist businesses owned by women, minorities, veterans, rural businesses, and other designated types of businesses. The 504 loans are set up to work with Certified Development Companies - nonprofit corporations set up for community development. Generally the project assets are used as collateral.

The CDC/504 loan program is a long-term financing tool for economic development within a community. The 504 Program provides growing businesses with long-term, fixed-rate financing for major fixed assets, such as land and buildings, through a Certified Development Company (CDC).

Is My Business Eligible for a 504 Loan?

SBA loans are only for small businesses, as defined by the SBA as businesses having a "tangible net worth less than $15 million and an average net income less than $5.0 million after taxes for the preceding two years."

Then, the SBA looks at the activities of the business and its owners. Most types of small businesses are eligible for SBA financing, including 504 loans, including loans for the sale of a business, and loans for individuals on parole. Ineligible companies include non-profit companies, lenders, businesses involved in lending or speculative activities.

See this list of eligible and ineligible businesses for SBA loans.

Specifically, for 504 loan eligibility, the SBA is focusing on:

  • Businesses owned by women, minorities, rural businesses and other specific types of businesses
  • Businesses that have been designated as in development areas and who are working with Certified Development Companies (CDC)

What is a Certified Development Company (CDC)?

A Certified Development Company (CDC) is a nonprofit corporation set up to contribute to the economic development of its community. CDC's work with the SBA and private-sector lenders to provide financing to small businesses. There are about 270 CDCs nationwide, with each covering a specific geographic area. You can find a Certified Development Company in your area by using this SBA web page and entering your location.

What Can I Use the 504 Loan For?

These 504/CDC loans can be used:

  • To buy an existing building,
  • Construct a new facility or modernize, renovate or convert and existing facility
  • Buy land and improve it,
  • Buy long-term machinery, or
  • Refinance debt related to expanding a business or renovating facilities or equipment.
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