SBA 504 Loan Calculator

A 504 is a package, not a single loan. Your bank makes a conventional loan for half the project and takes the first lien, which means it gets paid first if things go wrong. A Certified Development Company funds 40 percent through an SBA-backed debenture and accepts the second lien. You put in the last 10 percent. The lien order explains the pricing. The bank's exposure is only half the project and it stands first in line, so it is lending into a safe position. The CDC piece can price below the market because the debenture behind it carries a federal guarantee. Your contribution rises in two cases. A business under two years old counts as a startup and puts down 15 percent. A startup buying special-purpose property, a car wash or a bowling alley or anything hard to convert to another use, puts down 20 percent. Established businesses buying ordinary buildings keep the 10 percent figure, which is well under the 20 to 25 percent most commercial lenders want on a conventional mortgage.

The CDC does not lend its own money. Each month, the 504 debentures approved around the country are pooled and sold to investors as bonds backed by the federal government. The sale sets the rate: current Treasury yields plus a spread, fixed for the full term of the loan. Government backing makes the bonds cheap to sell, and that saving passes through as a below-market fixed rate no individual small business could get on its own. The timing has a catch. Your rate locks at the debenture sale, not at closing, and the sale runs on the monthly cycle, often four to six weeks after you close. The CDC quotes an estimate up front, but the final number can drift either way in the gap, and you pay an interim rate on that portion until the debenture funds. The bank half is a separate negotiation entirely and can be fixed or variable on whatever terms you and the bank agree. One more wrinkle: the effective rate the CDC quotes already folds in the program's ongoing fees, CDC servicing and the SBA's guarantee charge among them, spread across the payment rather than billed separately. That is why a published debenture rate and the effective rate on your quote differ by a fraction of a point. When you compare a 504 against a bank's fixed-rate offer, use the effective number.

The 504 buys durable things. Land, existing buildings, new construction, major renovation, and equipment with a useful life of at least ten years all qualify, and refinancing debt that originally funded an eligible asset can qualify too. The occupancy rule is the one that surprises people: your business must occupy at least 51 percent of an existing building you buy, or 60 percent of new construction, so a property bought mainly to rent out is off the table. Working capital, inventory, and business purchases belong to the 7(a) program instead. Beyond the asset rules, the screen looks like this.

Take this calculator's defaults. On a $1,000,000 project, the bank lends $500,000 at 7.5 percent over 25 years, about $3,695 a month. The CDC debenture covers $400,000 at 5.5 percent over 20 years, about $2,752. Combined, that is roughly $6,450 a month on $900,000 of borrowing, a blended rate near 6.6 percent, after you put $100,000 down. A conventional route on the same building typically means 20 percent down, so $200,000 out of pocket, and $800,000 borrowed at a commercial mortgage rate. At 8 percent over 20 years that is about $6,690 a month. In this example the 504 leaves $100,000 more cash in the business and still carries the smaller payment, with the CDC piece locked against future rate rises. Two loans do mean two payments to two servicers, and the CDC side has its own fees, so read the full fee sheet before comparing. For an owner-occupied building, though, less cash down plus a partly fixed rate is hard to match with conventional financing.