When it comes to starting a business, it’s extremely common for business operators that have warehouses, offices, even storefronts, to start their businesses in a leased property.  It makes sense because it’s more affordable to rent versus own (at least in the beginning), and typically it’s faster to find a location to rent versus buy. Additionally, some businesses move about, so leasing space early on is almost always the right way to go.

That said, there comes a point when a business is better off purchasing property as opposed to renting one. It’s not unlike the benefits that come from buying a house—owning property and gaining equity in real estate can help leverage more opportunities in the future.

A fantastic option for businesses wanting to purchase commercial real estate, whether new or already occupants of, is the SBA 504 Loan Program. The 504 is a government-backed loan, that’s designed to give small businesses an affordable loan option while simultaneously promoting both job creation and business growth.

How it works is simple: the SBA (through a Certified Development Company like us here at BFC) provides 40 percent of a loan amount. A lender (typically a local bank) accounts for 50 percent, while the borrower is required to contribute 10 percent of the project’s total cost. The bank will hold the first lien position, while the CDC holds the second lien on the 504 loan, which is for 20-25 years at a low fixed rate.

Ok, so what’s the catch? There isn’t one! The SBA 504 can help businesses grow without requiring a large down payment upfront, and can be used to not only purchase real estate, but also for things like machinery and construction equipment. Here at BFC, we offer our clients the opportunity for pre-qualification, which helps speed up the loan process and helps the business owner see clearly just how the SBA 504 works and what it will likely cost.

What are the requirements?

Most companies that qualify as small businesses can qualify for a CDC/504 loan, but there are certain requirements as laid out by the SBA. (SBA 504 Loan Eligibility)


The Small Business Applicant and its Affiliates must have:

  1. A Tangible net worth of $15 million or less; and
  2. Average net income after Federal income taxes (excluding any carry-over losses) for the preceding two completed fiscal years of $5 million or less.

This type of SBA loan has some specific requirements that businesses have to meet in order to qualify: they have to meet job creation criteria or a community development goal, and public policy goals. Also, the maximum gross debenture cannot exceed $5,000,000 for regular 504 loans and community development/public policy projects.  Generally, a business must create or retain one job for every $65,000 provided by the SBA.


At BFC, we’re here to help answer any questions you have about the SBA 504.
Give us a call today at 1-800-SBA-REAL or email Jacky Dilfer, at jacky@bfcfunding.com.