California SBA 504 Loans
Below-Market Fixed Rates | 10% Down

The SBA 504 loan is a government-backed financing program specifically for owner-occupied commercial real estate and major equipment purchases. It features a unique three-party structure: a bank provides 50% as a first mortgage, a Certified Development Company (CDC) provides 40% as an SBA-backed debenture at below-market fixed rates, and the borrower contributes 10% down. This structure allows for lower down payments and better rates than conventional commercial loans.

SBA 504 advantages: lower down payment (10% vs 10-20%), below-market fixed rates on CDC portion, lower overall effective rate, and longer terms up to 25 years. SBA 7(a) advantages: more flexible use of funds (working capital, acquisitions), faster closing (60-90 vs 90-120 days), and simpler structure. Choose 504 for real estate when rate savings outweigh the longer timeline.

SBA 504 CDC debenture rates are set monthly based on Treasury bond rates. As of 2026, 20-year rates are approximately 5.5-6.5% (rates subject to change), significantly below conventional commercial rates. The first mortgage (50%) from the bank will have a separately negotiated rate, typically similar to conventional commercial rates. The blended effective rate is usually lower than 100% conventional financing.

SBA 504 loans are specifically for: purchasing land and existing buildings, constructing new facilities or renovating existing ones, purchasing heavy machinery and equipment with 10+ year useful life, and refinancing eligible debt. Unlike 7(a), 504 cannot be used for working capital, inventory, or business acquisition goodwill. The property must be at least 51% owner-occupied.

The CDC portion of SBA 504 loans has a prepayment penalty that declines over the first 10 years, starting at approximately 3% and reducing to 0% by year 10. This is a trade-off for the below-market fixed rate. If you may sell or refinance within 10 years, factor this into your decision. The bank first mortgage may have separate prepayment terms.

SBA 504 loans typically take 90-120 days to close, longer than SBA 7(a) or conventional commercial loans. The process involves three parties (bank, CDC, SBA) and two separate closings. The CDC/SBA portion may close 30-60 days after the bank portion. Plan for this timeline when making purchase offers and ensure sellers can accommodate.

Key requirements: for-profit US business, tangible net worth under $15 million, average net income under $5 million for past two years, 51%+ owner-occupancy of the property, and job creation or other public policy goals. The business must demonstrate ability to repay and owners with 20%+ stake must personally guarantee. Good credit history (typically 680+) is expected.

No, SBA 504 requires at least 51% owner-occupancy for existing buildings or 60% for new construction. You cannot use 504 for pure investment property. If you need less than 51% of the space, you may still qualify if you can demonstrate you'll grow into the space within a reasonable timeframe. For investment property, consider DSCR loans or conventional commercial financing.