The Small Business Administration’s (SBA) CDC/504 loan program has undergone significant improvements over the past few years, creating more opportunities for small businesses and the mortgage brokers who serve them. These updates not only expand the pool of eligible borrowers but also increase the financing available.
They also make the program a powerful tool for commercial brokers to help their clients achieve their business goals. Understanding these changes can provide a competitive edge in the marketplace and strengthen relationships with clients seeking long-term, stable financing.
Built for growth
The CDC/504 loan program is designed to provide small businesses with long-term, fixed-rate financing for major fixed assets such as commercial real estate and equipment. Administered through certified development companies (CDCs), the program promotes economic development by enabling businesses to create and retain jobs. With 90% financing available and fixed interest rates over 10, 20 or 25 years, the program offers an attractive alternative to traditional lending options.
In recent years, the program has seen key enhancements that have broadened its appeal and accessibility. These changes include increased loan limits, updated size standards, new refinancing regulations and added flexibility for affiliated businesses. These updates position the program as a valuable resource for small businesses while creating new opportunities for mortgage brokers to provide tailored solutions.
Flexible financing
CDC/504 loans enable small-business owners to purchase, renovate, construct or refinance commercial real estate. This low equity requirement allows companies to retain precious working capital, which can be reinvested into their business to fuel growth.
Unlike conventional loans, which typically require higher equity contributions and only finance the purchase price, these SBA loans finance the total project cost, with the downpayment representing only 10% of that total. Borrowers can roll construction expenses, renovation costs, equipment purchases, closing fees and soft costs into the loan rather than paying out of pocket. This feature makes the program especially appealing for businesses managing tight cash flows.
For some projects, a downpayment of 15% to 20% may be required, such as for single-use properties or businesses with less than two years of operating history. Even in these cases, the equity requirement is significantly lower than traditional financing, which often demands 25% or even higher for specialized properties such as hotels.
Increased loan limits
These types of loans have a unique two-tiered structure that combines a first mortgage from a conventional lender with a second mortgage from the SBA via a CDC. Typically, the first mortgage covers 50% of the total project cost, while the SBA second-lien mortgage accounts for 40%. Borrowers provide the remaining 10% as the downpayment.
The SBA portion offers fixed interest rates, terms of up to 25 years, and full amortization, meaning no balloon payments. This fixed-payment structure provides business owners with predictability and control over their overhead costs. One of the most significant updates to the loan program is the increase in loan limits. For most businesses, the SBA portion of the financing is capped at $5 million. For manufacturers and businesses that incorporate eligible green energy initiatives, the SBA portion of financing is capped at $5.5 million per project, with no limit to the number of projects. As a reminder, although the SBA second is capped at $5 million to $5.5 million, there is no limit on the bank first position loan. This means there is no limit to the total project cost. This provides unprecedented opportunities for these businesses to scale operations, purchase multiple properties or invest in substantial equipment upgrades.
For brokers, this means the ability to support larger and more complex transactions, catering to clients with ambitious growth plans. The increased limits for manufacturers and green projects also allow brokers to cultivate long-term relationships with repeat borrowers, driving sustained business growth and client satisfaction.
Expanded eligibility
The program’s size standards also have been increased, allowing larger businesses to qualify for financing. The tangible net worth of the business cannot exceed $20 million, and after-tax profit for the last two years cannot exceed $6.5 million. Alternatively, some businesses can qualify solely based on their number of employees. The personal net worth of the business owner is not a factor in determining eligibility.
These changes make the program more accessible to businesses that may not have previously met the eligibility requirements. For mortgage brokers, expanded eligibility opens new client opportunities, enabling them to serve a broader range of industries and business sizes.
Businesses must still occupy 51% of the property within one year of funding to be eligible. For new construction, the business must occupy a minimum of 60% of the property.
Refinancing revisions
Recent changes to the program’s refinancing rules have made it more accessible and beneficial for borrowers. Clients can now get cash out up to 90% loan-to-value (LTV) to address eligible business expenses, such as operating costs and secured debt. There is no cap on cash out when used for eligible business expenses, and other secured debt may now qualify as an eligible business expense, providing greater flexibility for borrowers.
“Recent changes to the program’s refinancing rules have made it more accessible and beneficial for borrowers.”
To qualify for a 504 loan, 75% of the original loan proceeds must have been used for eligible fixed assets. Conventional loans, as well as existing CDC/504, 7(a) and U.S. Department of Agriculture loans, are eligible to be refinanced under the CDC/504 program.
These changes open new avenues for brokers to assist clients in leveraging their property’s value to meet financial objectives. Brokers should educate their clients on how to take advantage of these regulations to maximize their financial flexibility and growth potential.
The affiliation rules for the program have also been updated, providing greater flexibility for businesses with complex ownership structures. These changes simplify the eligibility determination process, allowing more businesses to qualify for financing. Brokers can now serve a broader range of clients, including those with affiliated businesses, by understanding and applying these updated rules.
Niche opportunities
Certain industries stand to benefit particularly from the expansion of the loan program, creating niche opportunities for brokers to target specific markets, including manufacturing. Manufacturers can access extensive financing for eligible projects, enabling them to invest in equipment, technology, and infrastructure.
Hospitality is another industry that will benefit. Hotels and other businesses can leverage loans to fund property acquisitions, renovations, or construction projects, making it easier to meet the growing demand for travel and accommodations. The downpayment requirement for a hotel project is significantly lower with the program than it is with conventional financing.
With an aging population, the need for assisted living facilities continues to grow. Self-storage operations will prove to be a lucrative investment. Other businesses that also benefit from this type of loan include childcare centers, gas stations and car wash operations. Those incorporating energy-efficient upgrades or renewable energy solutions can qualify for additional financing.
By focusing on these industries, brokers can develop specialized expertise and attract clients in high-growth sectors. These opportunities not only benefit the broker but also contribute to economic growth and sustainability.
Practical tips
To maximize the potential of the CDC/504 loan program, brokers should educate clients about the program’s benefits. Host webinars, create informative content and offer one-on-one consultations to demystify the program and attract prospective borrowers.
Collaborate with CDCs and other industry professionals to streamline the application process and provide clients with a smooth experience. Sharing case studies of businesses that have successfully used the loans can inspire confidence and demonstrate the program’s real-world impact. And brokers should stay informed on changes in the program. That knowledge will help you tailor solutions and offer customized financing that align with your clients’ long-term goals.
The recent enhancements to the CDC/504 loan program have made it a more powerful tool for small businesses and the mortgage brokers who serve them. By expanding eligibility, increasing loan limits and offering greater flexibility, the program has opened new doors for growth and economic development. For mortgage brokers, these updates provide an opportunity to differentiate themselves, attract a broader client base, and build lasting relationships with businesses seeking stable, long-term financing.
