The U.S. Small Business Administration guarantees several types of business loans, including 504 loans providing long-term fixed rate financing of up to $5.5 million for major fixed assets.

Before going into the basics of SBA 504 loans, it’s important to understand the SBA rarely issues loans. Instead, the federal agency provides guarantees based on the loan amount and type to lenders to reduce the risk of lending to small businesses.

According to the SBA website, the 504 loan program provides guarantees for long-term,
fixed rate financing for major fixed assets that promote business growth and job creation. These loans are available through certified development companies (CDCs), community based partners who regulate nonprofits and promote economic development. CDCs are certified and regulated by SBA.

A 504 loan may be used for the purchase or construction of existing buildings or land; new facilities or machinery and equipment with a useful remaining life of a minimum of 10 years, including project-related artificial intelligence-supported equipment or machinery for manufacturing products.

A 504 loan also may also be used for improvements or modernization of land, streets, utilities, parking lots and landscaping as well as existing facilities.

A 504 loan may not be used for working capital or inventory;  consolidating, repaying or refinancing debt; speculation or investment in rental real estate or financing of AI-related working capital, intellectual property or consulting services soft costs.

Your company must meet the following criteria to apply for a 504 loan:

A for-profit company operating in the United States or its possessions.

Have a tangible net worth of less than $15 million.

Have an average net income of less than $5 million after federal income taxes for the two years preceding your application.

Fall within the SBA size guidelines based on North American Industry Classification System (NAICS) guidelines NAICS codes can be found  at www.naics.com/six-digit-naics.

Have qualified management and business expertise.

Have a current, viable business plan.

Demonstrate the ability to repay the loan.

If you’re registered with the System for Award Management (SAM), you already chose your NAICS codes. SBA size standards define whether a business entity is small and therefore eligible for government programs and preferences reserved for small business concerns.

Only SBA-approved CDCs can make 504 loans. Here is a link to approved CDCs: www.sba.gov/funding-programs/loans/504-loans/list-certified-development-companies.

The maximum loan amount for a 504 loan is $5.5 million.
For certain energy projects, the borrower may apply for a 504 loan of up to $5.5 million per project for up to three projects.

You can make payments through a central servicing agent, usually by monthly draws. Payments can also be made by wire or check. Loan terms vary, but generally have 10-, 20- and 25-year maturity terms. The interest rate is pegged to an increment above the current market rate for 10-year U.S. Treasury issues and totals about 3 percent of debt. This 3 percent may be financed with the loan.

Note: The lending market is in constant flux, particularly in the current high interest rate market. Approach several lenders to determine the best fit for your business.