Advantages of 504 Financing

Some benefits includes:

  • 90% financing – Preserve working capital for business growth and expansion
  • Long-term amortization means low monthly payments – Buying is often more cost effective than leasing
  • Below-market, 20-year fixed interest rate – Fix occupancy costs and secure a stable location for your business
  • Fixed or adjustable rates available on the First Mortgage
  • Title to the building can be taken by the business, the principals individually, a holding company, or a trust

Quick Facts & Sample Structure

Loan Amounts Based on $5mm Total Project Cost $2,500,000 $2,000,000 $500,000
Typical Structure 50% 40% 10% for most projects 2
Maximum Loan Amount No maximum $5-5,500,00 1
Rate Fixed or Adjustable Fixed
Maturity 10 years or more 20 years
Amortization Varies (10-30 years) 20 years (fully amortized)
Prepayment Varies by lender No penalty after 10 years 3
Fees Points vary (approx. 1%) No out-of-pocket fees; 2.65% SBA fee financed into loan.

1 $5M for most projects, $5.5M for manufacturers or energy-saving facilities. Note this is the max for the SBA portion of the loan only; there is no max project size.
2 New Businesses (less than two years old) and Special-Purpose Buildings require an additional 5% down.
3 Penalty is a declining percentage of the balance for the first 10 years.

Lease vs. Own?

Occupancy costs are one of the largest operating expenses for businesses. Buying a building for your business allows you to secure these costs and avoid the instability that comes with rent increases and moving. Some factors to consider when comparing the two options:

  • Owning costs more up front, but typically costs much less over time.
  • Being your own landlord gives your business a permanent home and offers stability.
  • The low down payment required with SBA 504 financing allows you to keep working capital to put back into your business.
  • Mortgage payments are often lower than or similar to lease payments.
  • Owning your building allows you to build equity and benefit from the building’s appreciation over time.
  • Owning can give you the option to lease any extra space your business is not occupying, offsetting your mortgage payments and occupancy costs.
  • The equity you build from owning can provide security in retirement.
  • There are tax advantages to owning.
If you’d like a custom lease vs. own comparison to see your options side-by-side, contact us. The following example comparison is based on a 10,000 square foot building:
Purchase Price $2,000,000
Renovations $0
Other Costs $0
Total Project Cost $2,000,000
Property Square Footage 10,000
Total Price Per Sq. Ft. $200
Up Front Costs
Down Payment (10%) $200,000
Estimated Bank Fees (1% of Loan Amount) $10,000
Estimated Report Costs (Appraisal & Environmental) $5,000
Total Cash Required $215,000
Monthly Costs
Mortgage Payment $11,116
Insurance & Property Tax $2,167
Repairs, Utilities, Maintenance $4,000
Depreciation Write-Off ($3,205)
Lease Income (if not 100% owner occupied) $0
Total Monthly Costs $14,077
Monthly Costs Per Square Foot $1.41
Forecasted Ownership Benefits
Monthly Mortgage Payment in 10 years $11,116
Equity After 10 Years $1,194,592
Cash Savings After 10 Years $891,296
Monthly Lease Payment $20,000
Property Square Footage 10,000
Total Price Per Sq. Ft. $2.00
Up Front Costs
Prepaid Rent (2 Months Rent) $40,000
Estimated Bank Fees (1% of Loan Amount) $20,000
Total Cash Required $60,000
Monthly Costs
Lease Payment $20,000
Total Monthly Payment $20,000
Monthly Costs Per Square Foot $2.00
Forecasted Cost of Leasing
Monthly Lease Payment in 10 years $26,095
Equity After 10 Years $0
Cash Savings After 10 Years $0


  • Bank rate, terms, and fees are estimates and vary depending on lender. Mortgage payment assumes a 25-year fixed rate at 4.95% on the 1st mortgage.
  • Actual SBA rate is set at debenture sale at time of funding. This example is based on a rate of 4.75% on the 2nd mortgage (SBA loan amount).
  • SBA fee is 2.15% of the SBA loan amount plus a $3,500 attorney flat fee. These fees are financed.
  • Insurance & Property Tax estimated at 1.3% of purchase price.
  • Repairs, Utilities, Maintenance costs are estimated at 0.2% of purchase price.
  • Depreciation estimated at a 75% basis over 39 years.
  • Assumes annual lease rate increase of 3%.
  • Equity assumes 2% annual appreciation.
  • Cash savings estimated based on total monthly ownership costs vs. total appreciated lease payments over 10 years, less difference in up front costs.

Compare SBA 504 financing to SBA 7(a) and conventional financing options

When compared to SBA 7(a) or conventional financing, SBA 504 financing offers some significant advantages. The chart below outlines some of the differences.

Down Payment 10% minimum 10-15% minimum 25-40%
Maximum Project Size No maximum $5 million maximum No maximum
Interest Rates Below-market, FIXED for full term (20 years) Typically variable Varies by lender
Fees Financed, included in SBA loan; approximately 2.65% Paid out-of-pocket; 2-3.75% Paid out-of-pocket; approximately 1%
Collateral No additional collateral required Additional collateral typically required for 90% financing Typically no additional collateral required
Prepayment Penalty Yes, for first 10 years, declining each year Yes, for first three years Varies by lender

Go Green to qualify for additional SBA financing

The SBA's energy efficiency program is designed to incentivize businesses to reduce energy consumption or generate renewable energy. Under this program, business owners can exceed the traditional SBA 504 project limits. A business may borrow up to $16.5 million in SBA funds, with a $5.5 million per project maximum. There is no maximum total project size, and no limit to the number of projects allowed to each borrower, which means that business owners looking for additional financing may now be eligible even if they have met SBA’s usual lending limits of $5 million per borrower. Business owners who had previously reached their SBA maximum may now qualify for additional SBA loans.

To qualify, you must either:

1 Reduce your business’ energy consumption by 10% or more

Examples include:

  • Installing energy-efficient lighting
  • Using hybrid or alternative fuel vehicles
  • Installing a more efficient HVAC system and/or more energy-efficient appliances
  • Improving insulation (new windows & skylights)

2  Generate renewable energy or renewable fuels to generate 10% or more of energy usage

Examples include:

  • Installing solar panels
  • Installing wind turbines

To see if your project may meet these program guidelines and learn more about taking advantage of this additional 504 financing, contact one of our financing experts.