CRE 101 · deweyluong.realtor

SBA 504 Loans Explained: How Georgia Business Owners Buy Their Building With 10% Down

The rent check you write every month could be a mortgage payment on a building you own. By Túy “Dewey” Luong, CCIM — Founding Broker, SERHANT. Atlanta · 318 closed sales / $281.2M career volume · 678-707-2498

For a business that plans to stay put, the SBA 504 program is the cheapest long-term money most owners will ever be offered to buy their building — and many never hear about it until after they have signed another five-year lease. This page explains how the 504 structure works, who qualifies, where buyers get tripped up, and how it compares with the SBA 7(a) and a conventional bank loan. It pairs with lease vs buy (the decision) and DSCR (the number the lender will test). Dewey Luong is a broker, not a lender — this is education, and final terms always come from the bank and the CDC on your actual file.

The 50 / 40 / 10 structure

• Bank first loan, about 50%: a conventional lender takes the first mortgage. Its rate and terms are negotiated with the bank and are often shorter or variable — this is the piece to shop.
• CDC / SBA second loan, about 40%: a Certified Development Company (in Georgia, lenders work with CDCs authorized statewide) funds a debenture backed by the SBA. This portion is fixed-rate and fully amortizing over 10, 20 or 25 years — no balloon, no repricing shock in year five.
• Borrower injection, about 10%: your down payment on the total project cost, which can include eligible closing costs, appraisal and environmental work rolled into the project.
• Why the blend matters: only half the stack behaves like a normal bank loan. The 40% CDC piece at a long fixed rate is what makes the blended payment predictable for decades.

The rules that decide eligibility

• Owner-occupancy: your business must occupy at least 51% of an existing building, or 60% of new construction. The rest can be leased to tenants — a common Gwinnett pattern is an owner in 6,000 SF of a 10,000 SF flex building with two tenants paying down the note.
• Down payment steps up: 10% standard; 15% for a special-purpose building (car wash, gas station, single-use restaurant build-out) or a business under two years old; 20% if both.
• Size limits: the CDC portion is capped at $5 million for most projects ($5.5 million for small manufacturers and certain energy projects), which supports total projects well into eight figures with the bank piece.
• What it cannot do: no pure investment property, no working capital, no speculation. If the business will not occupy the majority of the space, use a conventional loan instead — see the investor guide at Vietnamese investors' commercial property guide for that side of the table.
• Holding-company structure: owners commonly hold the real estate in a separate entity (an eligible passive company) that leases the building to the operating business at a rent sized to the loan payment plus ownership costs. Set this up with your CPA and attorney before the application, not after.

Worked example. The numbers below are made up to teach the mechanics. This is not a real property or a rate quote.

• An established Gwinnett wholesaler buys the 12,000 SF building it has rented for six years for $1,800,000 and occupies 7,200 SF (60%), leasing the rest to two existing tenants. Total project cost with eligible fees: about $1,860,000.
• Structure: bank first loan about $930,000 (50%); CDC/SBA second about $744,000 (40%) fixed for 25 years; borrower injection about $186,000 (10%) — roughly the cash the owner had been holding as a lease-security cushion.
• The underwriting test is the same DSCR discipline as any commercial loan: the business's cash flow, with the rent it no longer pays a landlord counted in, must cover the combined payment with margin — lenders typically look for about 1.20x or better on the whole file.
• The lesson: the win is not just the down payment. It is trading a rent that resets every lease term for a payment stack whose largest single piece is fixed for 25 years, in a building the business controls.

504 vs 7(a) vs conventional, in one pass

• 504: building and heavy equipment only; lowest down payment for owner-occupants; long fixed rate on 40% of the stack; occupancy required.
• 7(a): up to $5 million for almost any legitimate business purpose, including buying the business itself, goodwill and working capital; real-estate terms up to 25 years but rates usually variable; down payments often start around 10–20% depending on the deal.
• Conventional: no occupancy rule and no SBA paperwork, but typically 20–30% down, a 5–10 year balloon or repricing, and pricing set entirely by the bank's appetite for your industry.

Where 504 deals get delayed

• Two closings, one timeline: the bank loan and the CDC debenture close in sequence, and the interim period is bridged by the bank — paperwork discipline (entity docs, three years of business and personal tax returns, projections for newer businesses) is what keeps the file moving.
• Appraisal and environmental: a certified appraisal and, on many properties, a Phase I environmental review are required — order them early, the same discipline as due diligence.
• Prepayment: the CDC debenture carries a declining prepayment premium in its early years. A 504 is a hold-and-operate tool; if you expect to sell or refinance in three years, price that in before choosing it.
• Job and public-policy goals: 504 projects must meet job-creation or community-development standards — most operating businesses buying their own building satisfy this through the community-development route, but the CDC will document it.

Cho chủ doanh nghiệp người Việt

Rất nhiều chủ doanh nghiệp người Việt tại Gwinnett thuê mặt bằng 10–20 năm mà không biết rằng chương trình SBA 504 được thiết kế đúng cho trường hợp của mình: mua lại tòa nhà đang thuê với khoảng 10% tiền trả trước. Cơ cấu gồm ba phần: ngân hàng cho vay khoảng 50%, tổ chức CDC cho vay khoảng 40% với lãi suất cố định dài hạn đến 25 năm được SBA bảo lãnh, và người vay đóng khoảng 10% còn lại. Điều kiện quan trọng nhất là doanh nghiệp phải tự sử dụng ít nhất 51% diện tích tòa nhà; phần còn lại vẫn cho thuê được. Tiền trả trước tăng lên 15% nếu tòa nhà thuộc loại chuyên dụng hoặc doanh nghiệp mới hoạt động dưới hai năm.

Ba điểm cần nhớ: khoản vay CDC có phí trả trước hạn trong những năm đầu, nên 504 phù hợp với kế hoạch giữ lâu dài; hồ sơ cần ba năm khai thuế của doanh nghiệp và cá nhân cùng thẩm định giá và đánh giá môi trường; và nên lập công ty giữ bất động sản riêng theo tư vấn của CPA và luật sư ngay từ đầu. Đây là thông tin giáo dục chung, không phải tư vấn tài chính hay pháp lý.

Frequently asked questions

What is an SBA 504 loan, in plain English?

The SBA 504 program finances owner-occupied commercial real estate and long-life equipment with a three-part structure: a private bank loan of about 50% of the project cost in first position, an SBA-backed loan through a Certified Development Company (CDC) of about 40% in second position, and about 10% down from the borrower. The CDC portion carries a fixed rate for 10, 20 or 25 years, which is the program's signature advantage: most of the debt stack is locked long-term instead of repricing every few years like a typical bank loan.

How much down payment does a 504 loan require?

The standard borrower contribution is 10% of the total project cost (purchase price plus eligible closing and soft costs). It rises to 15% if the property is special-purpose (for example a car wash, gas station or other single-use building) or the business is a start-up with less than two years of operating history, and to 20% if both apply. The bank and CDC portions shrink accordingly, so a special-purpose start-up deal is structured roughly 50/30/20.

What does the 51% owner-occupancy rule mean?

Your operating business must occupy at least 51% of the rentable area of an existing building you buy with a 504 loan, and at least 60% of new construction (growing into more of it over time). You may lease out the remainder to other tenants. SBA loans cannot finance pure investment property: if your business will not occupy the majority of the building, the 504 program is the wrong tool and a conventional investment loan is the usual route.

504 or 7(a) — which SBA loan fits buying a building?

The 504 is purpose-built for fixed assets: real estate and major equipment, with a long-term fixed rate on the CDC portion and no working capital. The 7(a) is the flexible program: it can bundle a business acquisition, goodwill, inventory, equipment and working capital into one loan up to $5 million, but real-estate 7(a) rates are usually variable. If the deal is mainly a building your business will occupy, the 504 usually wins on rate certainty and total cost; if the deal is mainly buying a business that happens to include real estate, the 7(a) usually fits better.

Vay SBA 504 để mua nhà xưởng cho doanh nghiệp hoạt động như thế nào?

Chương trình SBA 504 giúp doanh nghiệp nhỏ mua bất động sản thương mại để tự sử dụng (owner-occupied) với cơ cấu ba phần: ngân hàng thương mại cho vay khoảng 50% ở vị thế thứ nhất, một tổ chức CDC cho vay khoảng 40% được SBA bảo lãnh ở vị thế thứ hai với lãi suất cố định 10, 20 hoặc 25 năm, và người vay trả trước khoảng 10%. Điều kiện chính: doanh nghiệp phải sử dụng ít nhất 51% diện tích của tòa nhà hiện hữu (60% nếu xây mới), khoản vay trước tăng lên 15% với tài sản chuyên dụng hoặc doanh nghiệp mới thành lập dưới hai năm, và 20% nếu cả hai điều kiện cùng đúng. SBA 504 không dùng cho bất động sản đầu tư thuần túy. Đây là thông tin giáo dục chung, không phải tư vấn tài chính; hãy làm việc với ngân hàng và CDC được SBA ủy quyền để thẩm định hồ sơ cụ thể.

This page is general education, not financial, legal, tax, or accounting advice, and not a loan offer or rate quote. SBA program terms, caps and rates change and are set by the SBA, the CDC and the participating lender on your file. Túy “Dewey” Luong, CCIM is a real estate broker, not a lender.