Most commercial real estate financing conversations are about investors. But a large share of commercial property is owned by the businesses that operate in it: manufacturers, medical practices, distributors, contractors, and professional firms. For those owner-users, the question is different. It isn't how to maximize returns on a building, it's whether owning the building beats paying rent on it, and how to finance it without draining the cash the business needs to run. The SBA 504 program was designed for exactly that question, and a rule change this year makes it more powerful.
What Changed in 2026
In May, the SBA announced a rule that raises the cumulative limit on combined 7(a) and 504 financing from $5 million to $10 million, effective July 4. Under the new policy, a qualified borrower can access up to $5 million through 7(a) and up to $5 million through 504, decoupling the two programs so one no longer counts against the other. The SBA described it as the highest level of SBA-backed financing available to small businesses in the agency's history. For a growing business, that means long-term real estate financing and working capital can now be paired in the same overall plan without hitting the old ceiling.
How a 504 Loan Is Structured
A 504 loan is a three-party structure. A bank or other lender provides a first mortgage, typically about 50% of the project cost. A Certified Development Company, a nonprofit partner certified and regulated by the SBA, provides a second loan of up to 40%. The borrower contributes the remaining 10%, with a higher contribution generally required for startups and special-use properties. The CDC portion has a fixed rate for the full term of 10, 20, or 25 years, set when the SBA-backed debenture is sold and pegged to market yields on 10-year Treasuries. The SBA's maximum on the 504 portion is $5.5 million, but the bank's first mortgage isn't subject to that cap, so total project sizes can be considerably larger.
Why the Structure Matters Right Now
Two features stand out in the current environment. First, the 10% down payment. Conventional commercial loans for owner-occupied property commonly require 25% to 35% down, so the difference can free up a meaningful amount of working capital. Second, the fixed rate on the largest subordinate layer. With the Fed's September dot plot pointing to elevated rates for longer, locking a long-term rate on part of the capital stack is a real advantage. Recent monthly debenture sales have priced in the mid-6% range, and because the bank's first mortgage is priced separately, the blended rate on a full 504 package depends on both layers. It's worth comparing that blended cost to a conventional bank loan, not just the headline rate on the SBA piece.
Who It's Built For, and Who It Isn't
The 504 program is for owner-occupants. The business generally must occupy at least 51% of an existing building, or 60% of a new construction project, and the program can't be used for passive investment or speculative real estate. Eligible uses include buying an existing building or land, constructing a new facility, and improving or modernizing an existing one. If a business plans to lease out most of the space, or the buyer is an investor rather than an operator, a conventional bank, life company, or other lender is the right path instead.
The Trade-Offs
Timeline. SBA-involved closings generally take longer than a straightforward bank loan because a CDC and the SBA are part of the process. Plan for that, especially if you need to close quickly.
Two lenders, two sets of documents. The bank and the CDC each have their own requirements, and the two have to be coordinated through closing.
Prepayment terms. SBA-backed debentures carry prepayment provisions that differ from a conventional bank loan, which matters if you may sell or refinance early.
Eligibility rules. Size standards, owner-occupancy, and business-purpose requirements all have to be met and documented.
Higher transaction costs. SBA 504 loans can carry higher transaction costs than conventional financing due to additional CDC, SBA-related, legal, and administrative fees. Some of these costs can be financed into the loan, but borrowers should compare total closing costs and fees alongside interest rates when evaluating their options.
The Midwest Angle
The Midwest has a deep base of small and mid-sized manufacturers, distributors, and trades businesses that own or lease their facilities, which is exactly the owner-user profile the 504 program serves. For a business in an industrial submarket where rents have climbed, the case for owning the building and fixing the cost of occupancy has rarely been stronger.
How SF Capital Can Help
SF Capital helps owner-users compare SBA 504 financing against conventional bank and other options for their specific property and timeline, and coordinates with lender and CDC partners to structure the deal. If you own, or are thinking about buying, the building your business operates in, contact the SF Capital team.
