What Actually is an SBA 504 Loan Debenture?

We get it. SBA 504 loans can be confusing, and sometimes overwhelming when you think about where financing is actually coming from.

Let’s take a quick look at what a “debenture”is and better understand how your SBA loan actually works.

First, an SBA 504 loan is not a government loan—in other words, the funds aren’t coming from the government. When you apply for a 504 loan through a Certified Development Company (like BFC), the loan is then submitted to the Small Business administration (SBA) for approval. Once the loan is approved by the SBA, this is where we (BFC) will implement the loan on your behalf with a guarantee provided by the SBA. Meaning, the loan will have the “full faith and credit” of the US government behind it.

The loan is then purchased by private investors from the CDC via the sale of SBA 504 loan debt. This debt is what’s known as a debenture. The debentures issued by CDCs are guaranteed by the SBA, which makes them available to investors such as large banks, pension funds and insurance companies. Each month, debentures issued by CDCs nationwide are pooled and sold to investors. The sale of the debentures is what funds your 504 loan.

Ok, now what? How does your loan actually get funded? Who do you pay the loan back to?

The loan itself is not distributed by or paid to the SBA, or to a CDC. Instead, your loan accounting and processing is made available by Wells Fargo Corporate Trust Services (find our list of Lender Partners), the central servicing agent for SBA 504 loans.

There’s a host of other activities, schedules and processes that take place behind the scenes when applying for an SBA 504 loan, but from the borrower’s perspective—the process is relatively simple.

Curious to Learn More?

We’d be happy to explain in more detail! Give us a call at 1 (800) SBA-REAL or Speak to a Loan Agent Today! 


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What is a SBA 504 Loan?