Application Related Questions
What is a CDC?
A CDC is a Certified Development Company chartered by the U.S. Small Business Administration to administer the SBA’s 504 loan program.
How much can I finance?
There is a limit to how much the SBA can finance. Depending upon your type of business the SBA can finance up to $5.5 million. Keep in mind that is only the SBA’s portion.
How does the 504 benefit a bank?
The 504 reduces exposure on a project to 50%.
Can I borrow the down payment?
Yes, assuming it meets the following criteria. If the borrowed funds are collateralized by a lien on the project property it must be subordinate to the SBA’s loan. The borrowed loan cannot be paid back at a faster rate than the SBA’s portion and if the borrowed contribution is collateralized by assets other than the project property, the borrower must demonstrate repayment of the loan for its contribution from the cash flow of the business or other sources.
How does the 504 benefit a borrower?
The 504 requires a smaller down payment than conventional forms of financing to help preserve working capital. Secondary collateral is rarely required and pricing is typically below market since exposure is reduced on the bank portion.
Can I obtain a loan if I declared bankruptcy?
Generally speaking it depends on how recent the bankruptcy was. Typically lenders require several years of current payment history before they will extend credit of this size. If the bankruptcy is several years old and repayment history is clean since your chances are greater.
How does the SBA define a small business?
A tangible net worth of $20 million or less and an average net income after Federal income taxes (excluding any carry-over losses) for the preceding two completed fiscal years of $6.5 million or less.
What types of properties does the SBA consider single purpose?
Amusement parks, bowling alleys, car wash properties, cemeteries, clubhouses, cold storage facilities where more than 50% of the total square footage is equipped for refrigeration, dormitories, farms including dairy facilities, gas stations, golf courses, hospitals including (surgery centers, urgent care centers, and other health or medical facilities), hotels and motels, marinas, mines, museums, nursing homes, oil wells, quarries including gravel pits, railroads, sanitary landfills, service centers (e.g. oil and lube, brake or transmission centers) with pits and in ground lifts, sports arenas, swimming pools, tennis clubs, theaters, and wineries.
Who is required to guaranty an SBA loan?
Any owners of 20% or more are required to guaranty. This includes owners of the operating company and the borrowing entity.
What fees does the SBA charge?
Below is a breakdown of the fees the SBA charges.
SBA Guaranty Fee (0.5%)
Underwriting Fee (0.4%)
Funding Fee (0.25%)
CDC Processing Fee (1.5%)
Eligible Closing Costs
What are other costs I might incur when getting a loan?
Depending upon the type of property and its current/prior uses you might need to purchase an environmental investigation. Typically all projects will have appraisal, escrow and title costs.
How long does it take to get a loan?
It depends on a number of different factors but assuming all of the necessary documentation is submitted the SBA can approve a loan in anywhere between 5-15 days. Much of this depends on volume at the Sacramento Loan Processing Center at the time of submission. We typically recommend at least a 30 day escrow to allow for sufficient time, however, it can be done in less time.
Application Related Questions
Is there a prepayment penalty on the SBA’s portion?
Yes. The duration of the prepayment period depends on the term of the loan. The most common option is the 20 year debenture which carries a 10 year prepayment penalty. The amount of the penalty depends on the debenture rate assigned to the loan. For instance if the debenture rate for your loan is 2.5% it would decline 10% every year for 10 years. After 10 years there is no prepayment penalty.
Can I make additional payments to buy down the principal balance?
Unfortunately you cannot. The SBA’s 504 product is funded by investors purchasing bonds, which limits that flexibility. Typically we advise that additional payments be made to the loan in the senior position if the option exists.
How is the SBA’s interest rate calculated?
Each month our funding mechanism starts with the yield on the 10 year treasury. A spread is added to that yield to sell the current debenture pool and that gives us the debenture rate. The fees are then added to come up with the effective rate over the term.
When is my interest rate fixed?
The SBA portion of your loan will fix the month the debenture is sold. Pricing typically occurs the first Tuesday of each month and sale occurs toward the middle of the month. Once the rate is determined your Loan Officer will be in contact with you to let you know what the rate is and what the payment amount will be.
Is the SBA portion assumable?
Yes. If the party assuming the loan is equal to or greater in terms of financial strength it is fully assumable.
Will the SBA allow me to refinance my first?
Yes. The general rule of thumb is that the SBA will subordinate to a new first if the borrower stands to benefit. Examples would be extending the term or lowering the interest rate. The SBA will not allow you to refinance the prepayment penalty on the existing first and points on the new loan. They also do not allow cash out subordinations unless it’s used to enhance their collateral or be used to acquire other fixed assets used for business purposes.
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How Does the SBA Define a Small Business?
One of the most common misconceptions about SBA loans is that only really small businesses qualify. In reality, the SBA definition of a small business is broader than many expect.
SBA Size Standards
To qualify for a 504 loan, your business must have:
Tangible net worth of $20 million or less
Average net income (after federal taxes) of $6.5 million or less for the past two fiscal years
These thresholds allow many mid-sized businesses to qualify—making SBA loans a viable option for more companies than you might think.
What Fees Should You Expect with an SBA 504 Loan?
While SBA 504 loans are known for competitive rates and terms, borrowers should understand the fees involved so there are no surprises at closing.
Standard SBA Fees
SBA Guaranty Fee: 0.5% of the SBA portion.
Underwriting Fee: 0.4%.
Funding Fee: 0.25%.
CDC Processing Fee: 1.5%.
Other Potential Costs
Appraisal fees
Environmental investigations (if required)
Closing costs
The Good News: Many of these fees can be financed into the loan, reducing upfront cash outlay.
How Long Does It Take to Get an SBA 504 Loan?
If you’re planning a major purchase for your business, timing is everything. Understanding the SBA 504 loan timeline can help you set realistic expectations and avoid costly delays.
Typical Timeline
While the SBA can approve a loan in app in as little as 7 days once all documentation is submitted, the total process often takes longer. On average, we recommend allowing 30–45 days from application to closing.
Factors that influence timing include:
Completeness of your application package
Volume at the SBA Loan Processing Center
Appraisal, environmental, and title work schedules
How to Speed Things Up
Gather required documents early (financial statements, tax returns, project details).
Respond quickly to lender or CDC requests.
Choose professionals familiar with SBA lending.
How Does the SBA 504 Loan Benefit Banks?
While the SBA 504 loan is known for helping small businesses secure affordable financing, it also comes with major advantages for participating banks.
When a bank participates in a 504 loan, they typically only finance 50% of the total project cost. This significantly reduces their risk exposure compared to traditional commercial lending. In some cases, a bank may choose to finance a higher percentage—but the typical structure limits their investment to half the deal.
Why Banks Like the 504 Program:
Lower Risk Exposure: Banks maintain a first lien position but often fund just 50% of the project.
SBA + CDC Backing: The remaining project costs are covered by the SBA (via the CDC) and the borrower, making the bank’s position more secure.
Access to More Deals: The 504 structure opens doors to borrowers who may not qualify for conventional financing—expanding the bank’s lending opportunities.
Everyone Wins
The Borrower gets long-term, fixed-rate financing with a smaller down payment.
The Bank enjoys reduced exposure and a strong collateral position.
The SBA fulfills its mission of supporting small business growth and economic development.
What Is a CDC and Why You Must Work with One for a 504 Loan
f you’re exploring SBA 504 loans, you’ve likely heard the term “CDC.” But what exactly is a CDC—and why is it a requirement, not an option, for this type of financing?
A CDC, or Certified Development Company, is a nonprofit organization chartered by the U.S. Small Business Administration (SBA) to deliver the SBA 504 loan program. These loans help small businesses finance major fixed assets like real estate and equipment at long-term, below-market fixed rates.
What Does a CDC Do?
A CDC is a critical part of the 504 loan structure. Their role includes:
Guiding borrowers through the SBA loan application process.
Working in partnership with banks to structure 504 loans.
Ensuring the project meets SBA eligibility and job creation goals.
Why Work with a CDC?
Because you have to—the SBA requires borrowers to work with a CDC in order to obtain a 504 loan. But beyond the requirement, there are meaningful benefits:
Specialized Expertise: CDCs are experts in SBA lending and understand how to move projects efficiently through the approval process.
Support from Start to Finish: From application to funding, CDCs stay closely involved.
Better Loan Structure: With the CDC financing up to 40% of the project and the bank typically financing 50%, borrowers often only need to contribute 10%—preserving working capital.
Final Thoughts
There’s no way around it: if you want a 504 loan, you need to work with a CDC. Fortunately, their involvement makes the process more manageable and improves your chances of a successful, timely closing.