Frequently Asked Questions about SBA 504 Loans

If you do not see the answer to your question here, please contact one of our business development officers. We will be happy to help you find the answers to questions based on your borrower’s business situation.


What is the job creation ratio required with an SBA 504 loan?

The job creation requirement is one job per $65,000 of SBA loan funds received. ($100,000 for Small Manufacturers who have an NAISC code beginning with 31, 32 or 33.)

Are there any special programs or exceptions to the job creation requirement?

Yes, the SBA 504 program has established Energy Efficiency/Public Policy goals that recognize the importance of ‘green’ initiatives by allowing special exceptions to the job creation requirements. Projects that meet one of the following new energy goals are eligible for SBA 504 loans without needing to create or retain jobs:

  • Reduction of energy consumption by at least 10% (please refer to our 504 energy policy section)
  • Increased use of sustainable designs that reduce the use of greenhouse gas and non-renewable resources and minimize harmful environmental impact.
  • Installation of equipment and/or upgrades that will process renewable energy sources.

Do “start-up” companies qualify for an SBA 504 loan?

Because the eligible uses for an SBA 504 loan are limited to real estate and machinery/equipment (excluding office equipment and computers), the loan program is primarily geared towards existing businesses which are seeking to expand. Start-up companies are not excluded from using an SBA 504 loan, however, the SBA will require a higher level of injection from the company than the 10% minimum.

Is an applicant automatically ineligible if they have had a prior bankruptcy?

If the bankruptcy was more than five years ago, and if there is a satisfactory explanation for it, the applicant may still be eligible for the SBA 504 loan program.

What is the maximum loan amount available under the SBA 504 program?

For typical projects the maximum SBA loan amount is up to 40% of the total project costs with a maximum dollar limit of $5,000,000. An exception to this rule exists if the applicant meets some public policy goal. In these cases up to $5.5 million may be obtained if the company meets at least one of the following criteria:

  • Business facility is located in a rural area.
  • Business facility is located in a business revitalization district.
  • Operating Company is majority-owned by either a woman or a veteran.
  • Operating Company is defined as a small manufacturing company with its primary NAICS code being in sectors 31, 32 and 33, and all of its production facilities are located in the United States
  • Business facility meets certain specific environmental or energy efficiency “green” goals

Can there be more than one Project funded with an SBA loan?

There can be more than one Project (for small manufacturers and eligible energy projects) for the same applicant or for its affiliates. The $5,500,000 per Project is not reduced by other prior SBA loan amounts outstanding because the $5,500,000 is a limit per Project, not a limit for each small business concern.

Note: SBA504 loans made for Projects for small manufacturers or eligible energy loans as described above do not reduce the $5,000,000 limit for each small business concern for regular SBA 504 loans and loans for Public Policy Projects.

Can seller-subordinated financing be used as the equity portion of the project?

While technically eligible, seller financing is considered a credit decision that is made on a case-by-case basis. If accepted, the seller must agree to subordinate his/her interest to the bank and SBA, and agree to sign a Subordination Agreement disallowing principal payments on the loan. If project assets are used to secure the seller’s Note, the term of that Note must match the term of the SBA loan. However, if the seller’s Note is secured by a non-project asset, the term need not match the SBA loan term.

Is it possible to purchase both real estate and equipment at the same time using an SBA loan?

Yes – in two possible ways. It is possible to prepare “companion” SBA504 loans – one 20– year loan for the real estate, and another 10–year loan for the equipment. Or, if the weighted useful life of the equipment does not “drag” the overall life of the project below 20 years, we can prepare a single application that includes both real estate and equipment.

 I bought land several years ago that is worth much more now than I originally paid for it. Can I contribute the land to my building construction project as equity? Will it be valued at cost or market value?

Land may be used as the equity injection in the project. The appraised value may be used if the land was acquired more than two years prior to the application date and the appraisal is accompanied by a title report covering the sale history for the past five years. Otherwise, the lower of cost or market value must be used.

The borrower’s contribution may include the buildings and site improvements on the contributed land as long as they are used in the project.

My accountant told me that there are tax advantages to me if I own the real estate personally and lease it back to my company. Is this practice permissible to the SBA?

Yes, however, anyone who owns 20% or more of either the real estate OR the company will be required to sign a Personal Guaranty for the entire amount of the SBA loan.

Is it permissible for two or more owners (such as two doctors each owning his/her own practice) to jointly purchase a building using the SBA 504 loan program and then lease back space to their individual businesses?

While it IS permissible for two (or more) unrelated owners to purchase or construct a building together, then each lease back a portion, borrowers should keep one important fact in mind: in order to qualify, each person who owns 20% or more of either the building OR either of the operating companies must offer a full personal and corporate guaranty on the entire project.

Another possibility would be for the two owners to turn the building into a condominium, with separate legal descriptions. In this way, each person will be asked to guaranty own his/her own portion of the building.