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:

1. Lower Risk Exposure: Banks maintain a first lien position but often fund just 50% of the project.
2. 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.
3. 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.