The SBA 504 loan program helps small businesses finance major fixed-asset purchases — primarily commercial real estate and heavy equipment — with long-term, fixed-rate financing and low down payments. For Texas businesses looking to buy or build owner-occupied commercial property or invest in significant equipment, the 504 program may offer the best terms available.
This guide explains how the SBA 504 program works, how it differs from the 7(a) program, what the published eligibility criteria are, and how Texas businesses can apply.
How the SBA 504 Loan Structure Works
The 504 program uses a unique three-party structure:
- Conventional lender (50%): A bank provides a first mortgage covering approximately 50% of the project cost.
- Certified Development Company (40%): An SBA-certified CDC provides a second mortgage funded through SBA-guaranteed debentures, covering up to 40% of the project cost.
- Borrower (10%): The business owner contributes a minimum of 10% as a down payment. Certain circumstances — such as startups or special-purpose properties — may require a higher down payment of 15% to 20%.
The CDC portion carries a fixed interest rate for the life of the loan, protecting borrowers from rising rates. This fixed-rate, long-term structure makes 504 loans attractive for businesses making significant real estate or equipment investments.
What 504 Loans Can Be Used For
- Purchasing owner-occupied commercial real estate
- Constructing new business facilities
- Renovating or improving existing facilities
- Purchasing long-life equipment and machinery
- Refinancing existing commercial real estate debt (under certain conditions)
The 504 program cannot be used for working capital, inventory, consolidating or repaying unsecured debt, or speculative real estate investment.
Published Eligibility Criteria
- For-profit business: Operating in the United States.
- Net worth: Tangible net worth must not exceed $20 million.
- Average net income: Average net income after federal taxes must not exceed $6.5 million for the two years before the application.
- Owner-occupied: For real estate projects, the business must occupy at least 51% of the property (60% for new construction).
- Job creation or public policy goal: 504 projects must create or retain jobs, or meet certain public policy goals such as community development, energy reduction, or minority business development.
Loan Amounts and Terms
- Maximum CDC portion: Generally $5 million per project, up to $5.5 million for manufacturing projects or certain energy-related projects.
- Total project size: No SBA-imposed maximum on total project cost, but the CDC portion is capped.
- Real estate terms: 20 or 25 years, fixed rate on the CDC portion.
- Equipment terms: 10 years, fixed rate on the CDC portion.
SBA 504 vs SBA 7(a)
Both programs serve Texas small businesses but fit different situations:
- 504 advantages: Lower down payment (10% vs typical 20-25% conventional), fixed interest rate on CDC portion, longer terms for real estate and equipment.
- 7(a) advantages: More flexible use of funds (working capital, inventory, debt refinancing), simpler structure with a single lender. SBA 7(a) guide.
- Best fit for 504: Businesses purchasing real estate or heavy equipment who want long-term fixed rates and low down payments.
- Best fit for 7(a): Businesses needing flexible working capital or smaller loan amounts.
How to Apply in Texas
Step 1: Contact a Certified Development Company
The first step is to contact a CDC that operates in your area of Texas. CDCs are SBA-certified nonprofit organizations that process and service 504 loans. Texas has several active CDCs serving different regions. Your local SBA District Office or SBDC can provide referrals.
Step 2: Work with a Conventional Lender
You also need a conventional lender (bank) to provide the first mortgage portion. Some CDCs can help match you with participating lenders. Many Texas banks are experienced with 504 loans and understand the structure.
Step 3: Submit the Application
The CDC handles the SBA portion of the application. You provide financial documentation similar to other SBA programs: tax returns, financial statements, business plan or project description, and personal financial statements for owners.
Step 4: SBA Authorization and Closing
The SBA reviews and authorizes the CDC debenture. After authorization, the conventional loan and CDC loan close. The CDC sells the debenture in the bond market, which is how the fixed rate is established.
Layering 504 with Other Programs
Texas businesses can layer 504 financing with other programs:
- Property tax abatements: Reduce property tax burden while paying the 504 loan. Property tax abatement guide.
- Energy efficiency incentives: Use energy rebates and tax credits to offset facility improvement costs financed through 504.
- New Markets Tax Credits: For projects in qualifying low-income census tracts.
Find Programs That May Fit Your Business
SBA 504 loans are one tool in a larger toolkit. Texas businesses may also be eligible for grants, tax credits, workforce training funds, and other programs that complement 504 financing.
Not sure which programs may fit your business? Our free screening report checks your business against 150+ verified programs — grants, tax credits, loans, and incentives — and shows you which ones may match. Start your free screening →