SBA 504 Eligibility: Project, Ownership, and Refinancing Tests

A 504 loan may fit a business buying or improving an owner-occupied building or long-term equipment. Qualification depends on the business, the project, your contribution, and the ability to repay both loans. For refinancing without expansion, the qualifying debt generally must be at least six months old; the business's separate operating-history requirement is two years.

For the bank/CDC financing structure and cost comparison, use the 504 program overview. This page helps you prepare an eligibility discussion with a Certified Development Company (CDC).

Business eligibility comes before the property

• Your business must operate for profit in the United States and meet the relevant industry size standard, including affiliates, or the alternative financial standard.
• Under the alternative standard, the business and affiliates must satisfy both tangible net worth of no more than $20 million and average net income after federal income taxes of no more than $6.5 million for the two full fiscal years before application, excluding carry-over losses.
• For current new 7(a) and 504 applications, all direct and indirect individual owners must be U.S. citizens or U.S. nationals with their principal residence in the United States, its territories, or possessions. Entity owners must be organized there. A green card by itself no longer satisfies the ownership rule. Review the entire ownership chain with the CDC, along with guarantor requirements.
• The business must be creditworthy and demonstrate repayment ability. Nonprofit, speculative, and most passive investment businesses do not qualify.

A property-holding company leasing to your operating business may qualify through an eligible passive company structure; common ownership alone does not make it eligible. Bring both entities' ownership, leases, and financial records so the CDC can assess the structure and guarantees.

Does the project use eligible assets?

Typical uses are acquiring land or buildings, construction and permanent improvements, and machinery or equipment with a useful remaining life of at least ten years. Standalone inventory, ordinary working capital, or speculative rental-property investment is not a standard 504 project. Certain refinancing projects have a separate eligible-business-expense provision, described below.

For an existing building, your operating business generally must occupy at least 51% of rentable space. New construction generally requires at least 60% occupied by the business, limits permanent leasing to 20%, and requires a plan to occupy some remaining space within three years and all space not permanently leased within ten years. Show a floor plan and tenant leases; do not use your occupancy across unrelated properties to satisfy this property's test.

How much must you contribute?

For a hypothetical $1 million ordinary project, 10% means at least $100,000 from the borrower. If both higher-contribution conditions apply, the minimum becomes $200,000. Closing costs, reserves, or a lender's additional requirements can increase cash needed. Document the source of your contribution instead of assuming every dollar of property value counts as usable equity.

Economic development and repayment are separate tests

The project generally must meet job creation or retention requirements or an eligible economic-development/public-policy route. For loans approved on or after October 1, 2025, the job standard is one job per $95,000 of SBA-guaranteed funding, or $150,000 for qualifying small-manufacturer or energy-policy projects. These amounts concern the SBA portion, not the total property price. Ask the CDC which route it will document and what evidence you must retain.

Bring current and historical financial statements, tax returns, existing debt schedules, and projections that include both new loan payments. The CDC and senior lender analyze repayment using their applicable underwriting requirements. A debt-service coverage ratio divides cash available for debt payments by annual debt payments; $100,000 divided by $80,000 equals 1.25. That calculation is not a universal promise of approval or a single cutoff that replaces the full review.

Refinancing: debt age is not business age

For refinancing without expansion, the business must have operated for the full two years before application. Qualified debt generally must have been incurred at least six months before SBA receives the application, have at least 75% of its proceeds tied to eligible fixed assets, benefit the business, and be secured by eligible fixed assets.

Existing 7(a) or 504 debt is not categorically barred. Refinancing those loans requires notice to the relevant lender or CDC, the required treatment of an existing 504 senior loan, and a lower payment on the refinanced debt after accounting for financing costs and penalties, unless an exception is approved. Refinancing associated with expansion follows separate conditions.

An approved refinancing project can include specified eligible business expenses, subject to its appraisal, financing, and documentation conditions. This does not turn every 504 loan into unrestricted working capital. Bring original loan documents, the use-of-proceeds trail, current payoff information, payment history, collateral records, and an itemized expense request.

Start with a project package and a CDC

1. Prepare a one-page project description, purchase or construction budget, equipment quotes, occupancy plan, and proposed timing.
2. Add ownership and affiliate records, financial statements, tax returns, debts, and proof of your contribution. For refinancing, add the debt evidence listed above.
3. Find a CDC serving your area and ask it to identify the eligibility route, required contribution, and unresolved conditions before you commit to a financing-dependent purchase.
4. Compare the senior lender's and CDC's written terms, including monthly payments, fees, collateral, guarantees, prepayment costs, and closing requirements. A preliminary discussion is not final approval.

If financing is declined, identify whether the reason is a program bar, an unsupported project condition, or the lender's credit judgment. Address missing evidence or discuss a different lender when appropriate. For an SBA decline, have the CDC explain the written reason and available reconsideration procedure. If the main need is inventory or operating cash, compare 7(a) or a microloan instead.