SBA 504 Real Estate Loans

SBA 504 is designed for owner-occupied commercial real estate and can be used for property acquisitions, improvements, and eligible refinances. It doesn’t cover working capital, inventory, or pure investment/rental properties. At AVANA, we focus on acquisition and refinance of owner-occupied CRE. Typical projects we support include franchised hotels, medical offices, industrial/warehouse, self-storage, grocery-anchored retail, franchise restaurants, and light manufacturing. We do not offer ground-up construction under our 504 first-lien program.

Generally, a U.S. for-profit operating company that will occupy at least 51% of an existing building (or 60% at opening for new builds) and meets SBA size standards can qualify. As a rule of thumb, the SBA looks for a tangible net worth under $20 million and two-year average net income under $6.5 million after taxes, along with the ability to repay and sound management. Startups and certain special-purpose properties may require extra equity. AVANA concentrates on owner-occupied CRE with clear business use and supportable cash flow, and we team up with a qualified CDC to package and move the file efficiently.

The SBA 504 loan structure has three parts: a commercial lender 1st mortgage (typically 50% of the project), an SBA/ CDC 2nd mortgage (typically 30–40%), and borrower equity (typically 10%–20%). The SBA/CDC portion is capped at $5.0MM for most projects, or $5.5MM for small manufacturers and qualifying energy-efficient projects.

While the SBA piece is capped, there is no set cap on total project size. For example, projects as large as $30MM could be structured with a $21.0MM (70%) first mortgage from the bank, a $5.5MM (18%) SBA debenture, and $3.5MM (12%) in borrower equity. This blend of a larger 1st mortgage and increased borrower equity, allows larger transactions to be completed within the SBA 504 framework.

Borrower equity requirements increase for certain projects: 15% for start-ups or special-purpose properties, and 20% if both apply.

The SBA/CDC second-lien piece is long-term fixed-rate financing, most often on a 25-year amortization (some are 20-year). The rate is determined at the monthly debenture sale and then fixed for the life of the loan. The first-lien terms (rate, fixed vs. variable, any interest-only period) are set by the participating lender like AVANA and depend on credit, structure, and market conditions.

Most SBA 504 loans close in about 45 to 75 days. A major factor is the speed at which the borrower provides the items needed for underwriting. The main pacing item is typically the real estate appraisal, which usually takes 3 to 4 weeks.

The bank and CDC underwrite in parallel, and once a complete package is submitted, the SBA typically issues approval in 5 to 10 business days. Choosing an experienced CD

To give you a quick read, we’ll want a brief business summary (what the company does, years in business, owners), the property details (type, location, size), your use of proceeds (purchase or refinance), and the expected owner-occupancy percentage. Financially, plan on the last three years of business tax returns (and personal returns for owners of 20%+), year-to-date financials with a debt schedule, and projections if needed. For refinances, add the current note(s), 12-month payment history, payoff information, and any leases/rent roll if part of the building has tenants. If you share your target structure (the 50/40/10 split) and the requested first-lien amount, AVANA can respond quickly with an eligibility view and coordinate next steps with the CDC so appraisals, environmental reports, and other third-party items are ordered at the right time.