SBA 504 Loans: How to Use the Loan


The Small Business Association’s Certified Development Company/504 loan program gives long-term, fixed-rate financing for businesses. These loans are used to purchase new facilities or for buying equipment to update established locations.

An SBA 504 loan is about helping a small business buy the things needed to grow and expand. These loans can’t be used for working capital or buying inventory.

The Small Business Administration will grant a 504 loan that covers 40 percent of project costs. The maximum a company can receive is often $5 million on the Small Business Administration’s portion. 504 loans aren’t directly received from the SBA, but provided to a business from local non-profits that are designated as Certified Development Companies or CDCs.

As part of a requirement for this loan, a business must contribute ten percent of the expenses out of pocket. A Texas private lender will finance the other 50 percent of the costs.

504 Loan Proceeds

The money a business receives from an SBA 504 loan can be used for purchasing land that includes existing buildings, purchasing improvements including street improvements, utilities, parking lots, landscaping and grading and for the construction of a new facility or modernizing, renovating or converting an existing structure. Money from the loan can also be used for purchasing machinery and other equipment for the business.

The proceeds from the loan cannot be used for working capital or inventory, consolidating, refinancing or repaying a debt, or speculation or investment in rental real estate property.

Loan App Process

Once a business owner has made the decision to apply for an SBA loan, it’s important to gather the right documents for the application. The Small Business Administration is not a direct lender. However, the process starts with your local Texas lender and it must be done within the SBA guidelines.

We’ve provided a check-list to help ensure you have everything the lender might ask for to complete the application process. Once your package is done, your lender will forward it to the Small Business Administration.

  • SBA Loan App: To start the lending process, you’ll need to fill out an SBA application. You will need an SBA Form 1244 (Application for Business Loan) which can be downloaded online or provided by your lender.
  • Personal Background & Financial Statement: To determine your eligibility, the SBA needs the following two forms filled out; SBA Form 912 (Statement of Personal History) & Form 413 (Personal Financial Statement).
  • Business Financial Statement: To lend support to your app and to show you can repay the loan, you should prepare and submit the following financial statements:
    • Profit & Loss (P&L) Statement
    • Projected Financial Statements
  • Ownership & Affiliations: You need to prepare a list of names and addresses of subsidiaries and affiliates where you might hold a controlling interest and other concerns that may be affiliated by franchise, proposed merger or stock ownership.
  • Business Certification/Licensure: You’ll need to supply a copy of your original business license or certification of doing business.
  • Loan Application History: You should provide records for any loans you’ve applied for in the past.
  • Income Tax Copies: The SBA will need signed personal and business income tax records for approximately three years.
  • Resumes
  • Business Overview & History: You’ll have to provide a brief business history and include an explanation of why the loan is needed and how you will use it to improve your business.
  • Business Lease: Provide a copy of your business lease that outlines the terms.
  • When Purchasing an Existing Business: You should be prepared to provide the following information if you intend on purchasing an existing business:
    • Current balance sheet and P & L Statement of the business you wish to buy
    • Two years of income tax returns for the potential business
    • Proposed Bill of Sale that clearly outlines its terms

Asking price, schedule of inventory, and a list of machinery, furniture, equipment and fixtures