SBA 504 Basics

The 101 on 504s

Every SBA 504 Loan has three components :

Once a 504 loan closes, borrower ends up with two separate loans

1st Lien Loan

  • Underwritten by lender
  • 1st lien position on asset in case of default
  • Maximum loan to value of 50%

2nd Lien Loan

  • Initially underwritten by lender
  • SBA debenture funds within 45 days

Owner's Equity

  • Minimum 10% of loan amount due at signing
SBA 504 Graph | SBA 504 Basics | The 101 on 504's | APC Lending

Our Process (approximately 4 – 6 weeks)

1. Borrower completes our quick-app to pre-qualify

2. Introductory phone-call between borrower and APC Lending

3. Term sheet outlining rates, terms and costs of loan is executed

4. Borrower submits required documentation for SBA and APC Lending approval

5. Once SBA approval is received a closing is scheduled

6. Closing and loan funded

SBA 504 Basics | The 101 on 504's | APC Lending

Comparing the 504 and 7a Loans


The SBA 504 loan program was specifically designed for small businesses to finance commercial real estate or large equipment for use in business operations.

The 7a loan program was originally designed for higher-risk loans for things like the acquisition or starting of a business, working capital, or furniture and fixtures and leasehold improvements.

Uses, Down Payments, and Loan Amounts

An SBA 504 loan is commercial real estate and equipment financing for owner-occupied properties. These loans require only a 10% down payment by the small business owners and funding amounts range from $125,000 to $20 million.

On the other hand, SBA 7a loans can be used to buy a business or obtain working capital. The maximum loan for an SBA 7a loan amount is $5 million.

Terms and Fees

A 504 loan’s interest rate is fixed and underwriting fees are usually lower compared to a 7a loan.

The interest rate on a 7a loan however, can be adjustable and tied to the prime interest rate.

Amortization Periods

504 loans can be amortized up to 25 years.

7a loans can be amortized up to 25 years but are often shorter based on the collateral being financed.

Personal Guarantees and Collateral

504 loans require personal guarantees from the business owners but no outside collateral is required. 

7a loans require personal guarantees and usually also require the pledge of personal collateral (such as the business owner’s personal residence) for up to 90% of the loan value.

504 and 7a Loan Comparison Chart

SBA 504 Loan Comparison Chart | SBA 504 Basics | The 101 on 504's | APC Lending

Who is Eligible?

  • For Profit Small Businesses
  • Net Profit after taxes not to exceed $5 million average over previous 2 years
  • Small business owner must occupy at least 51% of real estate. Investment real estate is not eligible.
  • Max total financing cannot exceed $12.5 million

How Can Funds Be Used?

Eligible uses of 504 financing:

  • Purchase land or construct building
  • Purchase existing building
  • Refinance existing loans on real estate
  • Modernize, renovate or improve building
  • Soft Costs

Ineligible uses of 504 financing:

  • Working capital
  • Inventory
  • Broker fees
  • Bank Attorney fees

Think and SBA 504 Loan is the Right Loan for You?