The short answer: An SBA 504 loan splits a building or equipment purchase three ways. A bank or other Third Party Lender finances about 50% with a first lien, a Certified Development Company (CDC) finances up to 40% through an SBA-guaranteed debenture in second position, and the business puts in at least 10%. New businesses and special purpose properties put in 15%, and 20% if both apply. The business must occupy at least 51% of an existing building (60% for new construction), meet SBA size and eligibility rules, and show the project creates or keeps jobs or meets a public policy goal.
People call it "50-40-10" like it's a single loan. It isn't. It's two loans and a check, and each piece has its own rules and its own closing. Once you see the 504 that way, most of the requirements make sense.
As an SBA correspondent lender, Cressida Direct works with SBA wholesale lenders to place 7(a) and 504 loans. I spend a lot of my time on the 504 side, so here's how I explain the structure to owners and the brokers who bring them to us.
Walk through one project first
Say an established manufacturer, five years in business, wants to buy a $2,000,000 building. Round numbers, just to show the math.
- The Third Party Lender (usually a bank) lends $1,000,000, or 50%, and holds the first lien.
- The CDC lends $800,000, or 40%, funded by a debenture that SBA guarantees 100%. It holds the second lien.
- The business brings $200,000, or 10%.
The owner ends up with two payments: one to the bank on its loan, and one on the 504 debenture, which carries a fixed rate for the full term. That fixed second piece is the main reason owners pick a 504 for real estate.
Now change one fact. Make the business 18 months old. The SOP treats a company operating for two years or less as a new business, so the minimum contribution rises to 15% and the debenture drops to no more than 35%. Same building. $300,000 down instead of $200,000.
Change it again: an 18-month-old business buying a car wash. That's a new business and a Limited or Special Purpose Property, so the floor is 20% and the debenture tops out at 30%.
That's the whole contribution ladder:
- 10% for most established businesses
- 15% for a new business, or for a Limited or Special Purpose Property
- 20% when it's both
What counts as a special purpose property?
SBA keeps a list of examples in SOP 50 10 8.1, and it isn't meant to be complete. It includes car washes, gas stations, hotels and motels, hospitals, surgery and urgent care centers and other medical facilities, nursing homes and assisted living, bowling alleys, golf courses, marinas, funeral homes with crematoriums, theaters, wineries, and service centers with pits and in-ground lifts. Cold storage counts when more than half the square footage is refrigerated.
The CDC has to make the call in its credit memo, so don't assume. A medical office building and a surgery center can look alike from the parking lot and land in different buckets.
Where can the 10% come from?
This one surprises people. Your contribution can be cash, land that's part of the project, or equity in land or buildings you already own if they're part of the project. It can even be borrowed, as long as that debt is subordinate to both the Third Party Loan and the debenture and isn't repaid faster than the 504 loan without SBA's written approval.
It doesn't make the down payment free, though. Borrowed equity is still debt, and the lenders will count its payment when they look at cash flow.
Who is the Third Party Lender, and what do they have to do?
The Third Party Lender is a bank or other lender that makes the senior loan. A few SOP rules shape that piece:
The Third Party Loan has to be at least as large as the net debenture proceeds, and at least 50% of project costs for a new business or a limited or single purpose asset. Its term must be at least 7 years when paired with a 10-year debenture, and at least 10 years when paired with a 20- or 25-year debenture. A letter of interest or commitment from the lender is needed when the CDC submits the application, and on projects of $5 million or more, SBA wants the lender's credit memo too.
It can close and start amortizing before the debenture funds.
What does the business itself have to qualify on?
The 504 shares most of SBA's core eligibility rules with the 7(a). In plain terms:
It has to be a for-profit small business. That means meeting SBA's size standard for its industry, or the alternative test: tangible net worth of $20 million or less and average net income after taxes of $6.5 million or less over the prior two years (13 CFR 121.301).
Ownership. Since March 1, 2026, every owner must be a U.S. citizen or U.S. national whose principal residence is in the United States (SBA Policy Notice 5000-876441). Lawful permanent residents no longer qualify as owners. I see this trip up more deals in 2026 than almost anything else.
Occupancy. The business has to occupy at least 51% of an existing building it's buying or refinancing, or 60% of new construction. In an existing building, you can generally lease out the rest.
Guaranties. Anyone owning 20% or more personally guarantees the loan.
Repayment. The CDC underwrites cash flow, credit and management.
The jobs requirement, in plain English
Every 504 has to meet an economic development objective. The most common is jobs: the project should create or retain one job for every $95,000 of debenture. For small manufacturers and energy public policy projects, the number is $150,000.
Projects that don't hit the job ratio can qualify through a community development goal or a public policy goal instead. The lists in 13 CFR 120.862 include assisting manufacturers, aiding rural development, expanding exports, and expanding businesses owned by women or veterans, among others. If a project meets none of them, the debenture gets reduced.
It sounds bureaucratic. In practice, the CDC runs this math.
How big can a 504 get?
The debenture is capped at $5 million for most borrowers, and $5.5 million per project for small manufacturers and energy public policy projects. The minimum debenture is $25,000. Only existing 504 loans count toward that cap, not 7(a) balances.
The cap applies to the CDC's share, not the project. With the bank at 50%, total projects well above $10 million are possible.
Since July 4, 2026, SBA also lets a borrower combine up to $5 million of 7(a) with up to $5 million of 504, for $10 million in SBA-backed financing (SBA Policy Notice 5000-879058). The 7(a) has to be approved first. SBA's $3.75 million cap on the 7(a) guaranty still applies to the 7(a) side. If you're stacking the two, plan that sequence early.
What does a 504 cost?
Rates on the debenture are fixed and set when it sells. They're tied to Treasury yields: the 5-year Treasury for 10-year debentures and the 10-year Treasury for 20- and 25-year debentures.
CDCs publish effective rates after each monthly pricing. For the pricing completed October 8, 2026, CDCs published effective rates of about 6.60% on 10-year, 6.98% on 20-year and 6.97% on 25-year debentures. Those numbers move every month, so treat them as a snapshot, not a quote.
Fees on the CDC side, for fiscal year 2027 (SBA Information Notice 5000-881796):
- 0.50% upfront guaranty fee on the debenture
- 0.203% annual service fee (0.204% for refinances without expansion)
- Both waived for small manufacturers, food supply chain businesses and rural businesses this fiscal year
A CDC can also charge a processing fee of up to 1.5% of net debenture proceeds (13 CFR 120.971), plus closing costs. Many of these are financed into the debenture. The bank prices its own piece separately.
How long are the terms?
Debentures run 10, 20 or 25 years. Real estate usually goes 20 or 25; shorter-lived equipment fits the 10.
Why does a 504 close in two stages?
Because the debenture can't fund until the project is done. During construction or renovation, an interim lender (often the same bank) covers the CDC's share. After completion, the CDC closes the 504 loan, SBA's debentures are sold in a monthly pool, and the proceeds pay off the interim loan.
On a straight purchase of an existing building, the gap is short. On ground-up construction, it can be the length of the build. Either way, ask early who's providing interim financing. It's one of the first questions I put on a 504 file.
A note for brokers and referral partners
The 504 files that move smoothly usually arrive with three things answered: who will occupy the building and how much of it, how many people work there today, and whether the property might be special purpose. If you know those before you call, we can tell you fast whether the deal belongs in a 504, a 7(a), or neither. Register as a broker if you haven't, and send us the scenario.
For the head-to-head comparison, read SBA 504 vs. 7(a) for commercial real estate. For the 7(a) side, see our SBA 7(a) loan requirements checklist.
Frequently asked questions
What is the 50-40-10 structure in an SBA 504 loan?
A Third Party Lender finances about 50% of the project with a first lien, a CDC finances up to 40% through an SBA-guaranteed debenture in second position, and the borrower contributes at least 10%.
When do I need more than 10% down on a 504?
New businesses (operating two years or less) and Limited or Special Purpose Properties need at least 15%. A new business buying a special purpose property needs at least 20%.
Can the 504 down payment be borrowed?
Yes, if the debt is subordinate to both the Third Party Loan and the debenture and isn't repaid faster than the 504 loan without SBA's written approval.
How much of the building must my business occupy?
At least 51% of an existing building, or 60% of new construction.
What is the maximum SBA 504 loan amount?
The debenture is generally capped at $5 million, or $5.5 million per project for small manufacturers and energy public policy projects. The bank's loan isn't counted, so total project size can be much larger.
What is the job creation requirement for a 504 loan?
One job created or retained for every $95,000 of debenture, or $150,000 for small manufacturers and energy projects. Projects can qualify through community development or public policy goals instead.
Does Cressida Direct make SBA 504 loans?
As an SBA correspondent lender, Cressida Direct works with SBA wholesale lenders to place 7(a) and 504 loans. The CDC, the Third Party Lender and SBA make the credit decisions.
Have a building in mind?
Call me at 877.308.7557 or contact our team, and we'll walk through the split, the occupancy and the jobs math on your project. You can also review our SBA 504 & 7(a) program page or start an application.
This article is general information, not a loan commitment or legal or tax advice. SBA requirements and rates change, and final eligibility is determined by the CDC, the Third Party Lender and SBA.
About the author
Sources
- U.S. Small Business Administration, SOP 50 10 8.1, Lender and Development Company Loan Programs, Section C (504 Loan Program) and Section A, Ch. 3 (effective Oct. 1, 2026). https://www.sba.gov/document/sop-50-10-lender-development-company-loan-programs
- SBA Policy Notice 5000-876441, Citizenship and Residency Requirements (effective Mar. 1, 2026). https://www.sba.gov/document/policy-notice-5000-876441-update-sop-50-10-8-citizenship-residency-requirements-recission-procedural-notice-5000-872050
- SBA Policy Notice 5000-879058, combined 7(a) and 504 financing (effective July 4, 2026). https://www.sba.gov/document/policy-notice-5000-879058
- SBA Information Notice 5000-881796, 504 Loan Program Fees Effective October 1, 2026. https://www.sba.gov/document/information-notice-5000-881796
- 13 CFR 121.301 (alternative size standard) and 13 CFR 120.971 (CDC fees), via eCFR. https://www.ecfr.gov/current/title-13/part-121 ; https://www.ecfr.gov/current/title-13/section-120.971
- SBA, 504 loans program page. https://www.sba.gov/funding-programs/loans/504-loans
- CDC-published 504 effective rates for October 2026 pricing (Oct. 8, 2026), e.g., CDC Small Business Finance. https://www.cdcloans.com/sba-504-loan-rates