The SBA 504 loan program continues to be a vital tool for businesses looking to finance commercial real estate or heavy equipment. As of March 2025, the rates are slightly down, with the current debenture rate sitting at 6.24%. This slight decrease is a positive sign for those interested in financing options. Let’s dive deeper into what this means for your business and how the SBA 504 loan structure works.

Understanding the SBA 504 Debenture Rate

The SBA 504 loan is primarily designed for businesses seeking to acquire real estate or heavy machinery. The loan consists of two parts: a first mortgage from a bank and a second mortgage from a Certified Development Company (CDC). The debenture rate plays a crucial role in this structure, as it can affect the overall cost of financing.

As mentioned, the current 25-year debenture rate is 6.24%. This means that businesses can secure long-term financing at a predictable rate, which is essential for budgeting and financial planning. The 504 loan allows financing of up to 90% of total project costs, which is a significant advantage for businesses looking to expand or invest in new assets.

How Does the SBA 504 Loan Structure Work?

The SBA 504 loan structure is unique because it combines two loans into one package. The first loan is typically provided by a traditional bank, while the second loan comes from a CDC. This dual structure allows for larger financing amounts, often exceeding $20 million for eligible projects.

For real estate transactions, the first loan can be as large as $10 to $15 million, with the second loan (the CDC portion) providing up to $5 million, or $5.5 million for green projects. This is particularly beneficial for businesses involved in construction or expansion projects.

Debenture Process and Its Implications

Once the loan funds, the debenture process begins, which typically occurs after the certificate of occupancy is issued. It’s essential to understand that you cannot lock in the rate at the time of loan application for construction projects. Instead, the rate will be determined at the time the debenture is issued, approximately 30 days after the completion of the project.

This aspect can create uncertainty for businesses, particularly those engaged in long-term construction projects, as the final rate may fluctuate. For instance, if a business is building assisted living facilities, the rate could change by the time construction is completed.

Comparing SBA 504 and SBA 7(a) Loans

When considering financing options, it's crucial to understand the differences between the SBA 504 and SBA 7(a) loan programs. The SBA 7(a) loan is often described as a Swiss Army knife for small businesses, offering a wide range of uses, including business acquisition, real estate purchases, and working capital.

In contrast, the SBA 504 loan is specifically tailored for fixed assets, such as real estate and heavy equipment. While the 7(a) loan may offer more flexibility, the 504 loan provides lower, fixed interest rates that can be advantageous for long-term investments.

Benefits of the SBA 504 Loan Program

The SBA 504 loan program offers numerous benefits for businesses looking to finance major assets. Here are some key advantages:

• Long-term, fixed-rate financing for up to 25 years.
• Low down payment requirements, typically around 10%.
• Ability to finance up to 90% of project costs.
• Access to funds for both purchasing and constructing real estate.
• Potential for higher loan amounts when combined with a 7(a) loan.

Key Considerations When Applying for an SBA 504 Loan

Before applying for an SBA 504 loan, there are several considerations to keep in mind:

• Ensure your business operates as a for-profit entity in the U.S. or its possessions.
• Be prepared to demonstrate a tangible net worth of less than $15 million.
• Show an average net income of less than $5 million after federal income taxes for the two years preceding your application.
• Understand the specific use of funds, as the 504 loan cannot be used for working capital or inventory.

Preparing Your Application

To streamline your application process, gather the necessary documents ahead of time. This includes financial statements, tax returns, and a detailed business plan. Working with a CDC can also simplify navigation through the application process, as they are familiar with the requirements and can guide you effectively.

Staying Updated on SBA Loan Rates

It’s essential to stay informed about SBA loan rates, as they can fluctuate monthly. Our channel provides regular updates on rates and financing strategies, ensuring you have the latest information to make informed decisions. Subscribing to our updates means you won’t miss any critical changes that could impact your financing options.

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Conclusion

In summary, the SBA 504 loan program remains a robust option for businesses seeking to finance significant assets like real estate and heavy equipment. With rates currently at 6.24%, now may be an opportune time to explore financing options. Whether you’re looking to acquire, construct, or expand, understanding the nuances of the 504 loan can pave the way for your business’s success.

For personalized assistance, consider booking a consultation with a business advisor. Visit Beau Eckstein | Business Advisor specializing in SBA Financing, Franchise Discovery, & Expense Reduction Strategies today.

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