Understanding SBA Loans: A Closer Look at the SBA 504 Loan

Securing financing can be a smart way for businesses to level up their growth. The U.S. Small Business Administration (SBA) can play a key role.

The SBA is a federal agency that helps Americans build small businesses. One way it pursues this mission is through a robust lending program that includes the SBA 504 loan. With over 4,400 loans and approximately $5 billion in approvals in the first half of 2025, compared to nearly 6,000 in full-year 2024, the SBA 504 loan is a significant driver of small-business growth.

Could an SBA 504 loan be the right solution for your business? The answer depends on several factors, including your company’s tangible net worth and average net income, your industry, and the purpose of the loan.

Advantages of an SBA 504 Loan

Geared toward helping businesses acquire or improve existing, long-lasting assets, SBA 504 loans can be used for major fixed assets. Examples include the purchase of buildings or land, the construction of new facilities, improvements to existing facilities, or the purchase of machinery and equipment for long-term use.

All SBA loans are backed by a guarantee from the Small Business Administration. SBA 504 loans offer low down payments, fixed interest rates and longer payment terms, making them an appealing option to finance your commercial real estate needs.

What Businesses Qualify for an SBA 504 Loan

A central premise of the SBA’s programs is that small businesses are job creators and powerful engines for economic growth. Companies qualify based on SBA size standards. Western Alliance typically evaluates companies based on the Alternative Size Standard, which allows businesses with a maximum tangible net worth of $20 million and two-year average net income of no more than $6.5 million.

Qualifying businesses may be eligible for more than one type of SBA loan, and businesses may qualify for multiple SBA loans. A banker can help you identify the right type of SBA loan for your needs.

What to Know Before Applying for an SBA 504 Loan

SBA loans offer favorable terms and can be flexible financing solutions. However, most types of SBA loans — including 504 loans — require more documentation than most conventional loans. Borrowers typically need to provide a business plan, financial statements and personal financial data. 

Lenders consider a company’s projected income and historical data, but for businesses established for less than two years, other types of loans, such as 7(a) loans, may be more suitable. Some owners opt for other types of small business loans — including conventional loans or a combination of loan types — to finance their business.

What SBA 504 Loans Can’t Be Used For

SBA 504 loans carry some additional restrictions. You’ll want to make sure your planned use of loan funds meets these guidelines:

• Nonprofit organizations are not eligible.
• SBA 504 loans are not appropriate for working capital or inventory.
• SBA 504 loans cannot be used for speculative or rental real estate investments.
• These loans aren’t suitable for soft costs, such as consultants’ fees or other services.

Get an Assessment for Your Business

As an SBA lender, Western Alliance Bank offers competitive pricing for SBA 504 loans. To talk through your options with an experienced lender and assess whether an SBA 504 loan is a good option for your business, reach out to a relationship manager today.

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