SBA 504 Loans for Commercial Real Estate
The 504 program is the cheapest long-term fixed-rate option for owner-occupied commercial property — and the program most often structured wrong. We know which lenders pair well with which CDCs, and how to price the bank first lien against the CDC second to get the blended cost right.
How SBA 504 Works for Commercial Real Estate
The 504 program is purpose-built for owner-occupied commercial property — buying, building, or refinancing. The structure is three pieces sitting side by side: a conventional bank first mortgage (50% of project cost), an SBA-guaranteed CDC second-lien debenture (40%) at a fixed long-term rate, and borrower equity (10%). The CDC second is what makes 504 the cheapest fixed-rate option on commercial real estate — that debenture is funded through SBA-backed bond markets, so the rate is pinned to long-term Treasury, not bank cost of capital.
The property has to be at least 51% owner-occupied (60% for new construction). You can lease out the remaining space to tenants — many of the deals we package are mixed-use buildings where the borrower's business occupies the ground floor and rents out upper floors or adjacent suites.
Terms: the CDC second is 10, 20, or 25-year fully amortizing fixed — the 25-year term is the right call for real estate. The bank first is typically a 10-year balloon amortized over 25 years, though some lenders will go 15 or 20-year fully amortizing. Total project size: CDC caps at $5.5M (manufacturing/green can go higher), but the bank first has no SBA cap — so total deal size routinely runs to $15M+.
The 504 refinance program is a separate animal: existing commercial mortgage debt can be refinanced into a 504 structure with or without an expansion component. Under SOP 50 10 8 the cash-out provisions for eligible business expenses run up to 20% of project cost on the no-expansion track.
Typical 504 Deal Structure
Deal Size
$500K – $15M+ total project. CDC second caps at $5.5M; bank first has no SBA cap.
Down Payment
10% standard. 15% for special-purpose (hotels, gas stations, car washes). 20% for startup + special-purpose combined.
Term
CDC second: 10 / 20 / 25-year fixed, fully amortizing. Bank first: typically 10-year balloon amortized 25.
Rate (Blended)
Bank first: market commercial rate. CDC second: monthly debenture rate (tracks 10-year Treasury). Blended is typically 50–150 bps under straight conventional.
Timeline
75–110 days from term sheet. CDC underwriting + SBA authorization runs in parallel with bank underwriting.
Owner Occupancy
≥51% for existing buildings; ≥60% for new construction. Tenant income from the remaining space is permitted.
[PLACEHOLDER] "Bought a $4.2M owner-occupied warehouse for our distribution business. HelmPoint ran two different bank first liens against the CDC and ended up saving us about 90 basis points on the blended cost vs. what our local bank quoted on a conventional mortgage. 95 days door-to-door."
[PLACEHOLDER] — Operator name, City, ST
504-Eligible Property Types
Office / Professional
Medical and dental offices, professional suites, mixed-use office buildings. The most common 504 profile — clean lender appetite.
Manufacturing
Manufacturing facilities qualify for the higher project cap (up to $5.5M CDC, with additional flexibility for specific manufacturing categories under SOP 50 10 8).
Warehouse / Distribution
Owner-occupied warehouses for distribution, logistics, light assembly. Straightforward 504 — usually some of the easiest deals to price.
Mixed-Use
Ground-floor business + tenant-occupied upper floors. Owner has to occupy ≥51%. The tenant income helps DSCR but doesn't change the owner-occupancy rule.
Hospitality (Special-Purpose)
Hotels, motels, B&Bs. Requires 15% injection. Special-purpose designation means resale risk gets priced — but the program still works.
Construction / New Build
Ground-up construction of an owner-occupied facility. 60% post-build occupancy required. We coordinate the interim construction note with the take-out 504.
Frequently Asked Questions
What is the 50/40/10 structure on an SBA 504 loan?
The standard 504 stack is three pieces: 50% conventional bank first mortgage, 40% SBA-guaranteed CDC second-lien debenture (fixed rate, long term), and 10% borrower equity. For special-purpose properties (hotels, gas stations, car washes, theaters), the borrower injection bumps to 15%. For startups, it bumps to 20%. The 50/40 split between the bank and CDC is the heart of why 504 has the lowest blended cost of any SBA program.
What's the maximum 504 loan size?
The CDC portion (the SBA-guaranteed second lien) caps at $5.5M for most projects under SOP 50 10 8. Manufacturing projects and certain energy / public-policy projects get up to $5.5M with the cap potentially higher per project under specific rules. The bank first lien has no SBA-imposed cap, so total project size routinely runs to $15M+ on larger commercial buildings.
How does the 504 refinance program work?
The 504 Debt Refinance Program lets eligible businesses refinance existing commercial mortgage debt into a 504 structure. Under SOP 50 10 8 there are two tracks: refinance without expansion (the property has to be 51%+ owner-occupied and the original debt has to be at least 6 months old) and refinance with expansion (where the 504 funds an addition or renovation alongside the refi). Cash-out for eligible business expenses is permitted up to 20% of project cost on the no-expansion track.
What are typical terms on an SBA 504 commercial real estate loan?
CDC second lien: 10, 20, or 25-year fully amortizing fixed rate — the 25-year term is the most common on real estate deals. Bank first lien: typically 10-year balloon amortized over 25 years, though structures vary by lender. Blended interest costs over a 10-year hold are typically 50–150 basis points lower than a conventional commercial mortgage on the same property.
What special-purpose property rules apply to 504 loans?
Special-purpose properties — hotels, gas stations, car washes, theaters, marinas, golf courses, bowling alleys, mini-storage, and a handful of others — require a 15% equity injection instead of 10%. The reasoning is resale risk: a single-use building has fewer alternative tenants if the original use fails. For deals that are special-purpose AND startup, the injection requirement is 20%. We pre-screen for property classification so this doesn't surface at the wrong time.