SBA 504 Loan

A Powerful Financing Tool

The U.S. Small Business Administration (SBA) 504 loan program provides small and medium-size businesses with long-term, low, fixed-rate financing for owner-occupied commercial real estate and heavy machinery projects. The inspiration behind the SBA 504 loan is to promote business investment and job creation by providing access to low down payment financing, so that small businesses can preserve cash to operate their business.

How does the SBA 504 Loan work?

The SBA 504 loan packages two loans together, one from HCDC and one from a private lending partner, such as a commercial bank or credit union. The structure of the loan is typically 50/40/10.

The lending partner makes a commercial loan typically 50% of the total project costs and holds a first mortgage.

HCDC provides a subordinated, fixed-interest rate, long-term loan for up to 40% of project cost up to $5 million ($5.5 million in special cases).

The borrower typically provides an equity injection of as little as 10% of the project cost.

SBA 504 Loan Pie Chart

SBA 504 Loan Example – $1 Million Project

Source Percent Amount Security
Bank/Private 50% $500,000 1st Mortgage/Lien
HCDC 40% $400,000 2nd Mortgage/Lien
Business Borrower 10% $100,000 Cash
Totals 100% $ 1 Million

 Immediate and Long-Term Benefits for Small Businesses:

  • Borrower often needs only 10% down – leaving more cash to run your business.
  • Low fixed-rate financing for the 504 portion of the loan- you don’t have to worry about the prime lending rate going up for the 504 portion of the loan.
  • Long-term financing for 10 and 20 years- longer loan terms makes the monthly payments lower.

Benefits for Lenders:

  • Minimizes collateral risk with a first lien position and typically a 50% loan-to-value ratio.
  • Smaller banks can work on larger projects while bigger banks can limit exposure to certain industries.
  • Assist more customers by leveraging lending capacity across more borrowers.
  • Leverage the guarantee by the SBA to help customers who otherwise would not meet lending standards.
  • HCDC’s SBA Loan Experts will handle all the application paperwork, processing and review required by the SBA.
  • Provides Community Reinvestment Act credit.

Who Is Eligible for the 504 Loan Program?

  • For-profit corporations, partnerships and proprietorships.
  • Businesses whose net worth does not exceed $15,000,000.
  • Net profits must average less than $5,000,000 during the previous two years.

What Is Eligible for the 504 Loan Program?

  • Financing for land acquisition.
  • Financing for building acquisition or construction.
  • Financing for renovation or expansion.
  • Financing for machinery and equipment with a useful life of 10 years or more.
  • “Soft” costs for appraisals, general surveying, architectural work and installation.

Applicants Involved in the Following are Ineligible:

  • Speculative lending or investments.
  • Non-profit institutions.
  • Rental property held primarily for sale or investment.
  • Businesses appealing to sexual nature or prurient interests.

HCDC: The SBA Loan Resource

For over 30 years, HCDC has partnered with area private lenders to provide SBA loans to help businesses gain access to stable, long-term financing. Since 1982, HCDC has approved over $1 billion to area companies and helped finance the job creation of nearly 10,000 new jobs. HCDC is one of the largest non-bank SBA loan providers in Ohio, Kentucky and Southeast Indiana. Want more information? Contact us: