SBA 504 Loan Program Law and Legal Definition

SBA 504 Loan Program or Small Business Administration 504 Loan program or Certified Development Company loan program is a program that provides financing for the purchase of fixed assets like real estate, buildings and machinery, at below market rates. The 504 program works by distributing the loan among three parties. The business owner puts a minimum of 10%, a conventional lender like a bank puts up 50%, and Certified Development Company (CDC) puts up the remaining 40%. The maximum amount of the loan is usually $1 million (1.3 million in special circumstances). In case of default by the borrower, the private sector lender is paid off first, reducing the risk to the lender and encouraging loans. To be eligible for the loan, the business must be operated for profit and should fall within the size standards set by the SBA. The 504 Program cannot be used for working capital or inventory, consolidating or repaying debt, or refinancing.