By Michaela Schell, Business Development & Outreach Officer, Dakota Business Lending
You’ve got the vision. Now you’re thinking about the space. Maybe it’s a storefront of your own. A production facility. More room for your team, your tools, and your growth.
But one big question remains: How do you pay for it?
Buying or expanding commercial property is a major investment, and traditional loans often require large down payments and come with variable terms. One financing option built specifically for business growth is the SBA 504 loan program.
How The SBA 504 Loan Works
The SBA 504 loan program is a long-term, fixed-rate financing option designed to help small businesses acquire major fixed assets. These assets typically include owner-occupied commercial real estate and large equipment.
Loan Structure
The 504 loan is structured as a partnership between three parties:
- The business owner contributes a minimum of 10% down
- A lender or bank finances up to 50% of , the project
- A Certified Development Company (CDC) finances the remaining 40% through an SBA-backed loan
In some cases, the borrower’s contribution may be higher—such as 15% or 20%—if the property is considered “special-use” or the business is relatively new.
Key Benefits
Compared to conventional commercial loans, the SBA 504 offers
- Lower down payments (starting at 10%)
- Fixed interest rates on the CDC/SBA portion
- Longer repayment terms (10, 20, or 25 years)
- Stable monthly payments over time
- The ability to preserve working capital while still investing in growth
What is a CDC?
A Certified Development Company (CDC) is a nonprofit organization certified by the U.S. Small Business Administration (SBA) to deliver 504 loan financing to small businesses. CDCs are missiondriven lenders that promote economic development within their communities by helping businesses access long-term, fixed-rate financing for major fixed assets like real estate and equipment.
CDCS in North Dakota
- Dakota Business Lending (Fargo headquarters)
- Lake Agassiz Development Group (Fargo headquarters)
- Lewis & Clark Development Group (Bismarck headquarters)
- Minnesota Business Finance Corp (St. Paul headquarters)
What You Can Finance with An SBA 504 Loan
The 504 program is tailored to long-term investments in physical assets. Here’s what it can cover:
Buy existing buildings for business use, such as offices, retail space, warehouses, or industrial facilities.
Purchase Commercial Real Estate
Buy existing buildings for business use, such as offices, retail space, warehouses, or industrial facilities.
Build New Facilities
Finance ground-up construction, including the cost of land, labor, materials, utilities, and site improvements.
Renovate Or Expand
Modernize or expand an existing facility- whether through interior remodels, additions, or infrastructure upgrades.
Purchase Major Equipment
Acquire machinery or equipment with a useful life of 10+ years. Examples include:
- Manufacturing and processing equipment
- Medical or diagnostic machines
- Commercial-grade kitchen systems
- Large-scale printing or production lines
Leasehold Improvements
If you lease your space long-term, you may use the loan to fund permanent improvements to the property.
Refinance Existing Commercial Debt (Under Certain Conditions)
In some cases, the SBA 504 can refinance existing debt that was originally used to purchase, build, or improve eligible real estate or equipment.
Who is Eligible?
To qualify, a business must meet SBA guidelines, which typically include:
- Being a for-profit business operating in the U.S.
- Having a net worth under $20 million
- Earning an average net income under $6.5 million (after taxes) for the previous two years
- Using the loan to acquire, construct, or improve owner-occupied real estate (occupying at least 51% of the property for existing buildings or 60% for new construction)
- Demonstrating the ability to repay the loan
The project must also meet public policy goals, such as job creation or economic development in rural or underserved areas.
What Does A Lender Look For?
When considering a loan, the lender looks for the following key factors:
- Capacity – ability to repay the loan on time from the projected cash flow of the business and feasibility of the business plan.
- Character – stability, honesty, and reliability- credit history, experience, how long you’ve lived at current address, how long you have been at present position, etc.
- Collateral –availability of assets of the borrower to cover the debt if the borrower is unable to make payments.
- Capital – money you have invested in the business, have available to invest in the business or equity earned from business operations.
- Conditions-purpose of the loan and outside factors that affect your ability to repay, such as local economy, industry, and competition.
Loan Application Checklist
- Purpose of loan: equipment, inventory, working capital, real estate purchase, etc.
- Amount requested and how it will be used, including owners’ equity available for down payment
- Business plan
- 2-3 years of business financial projections—income statement, balance sheet, and cash flow as well as explanation of the assumptions used for the projections.
- 2-3 years of business financials or tax returns
- Schedule of existing debts
- Aging of accounts receivable and payable
- 2-3 years of personal tax returns
- Personal financial statements of principal owners
- Resumes of principal owners
How To Get Started
504 loans are only available through Certified Development Companies (CDCs)—nonprofit lenders certified by the U.S. Small Business Administration to promote local economic development.
To explore the SBA 504 program:
- Talk to your commercial lender or banker.
- Consult with your accountant, business advisor, or commercial real estate agent.
- Contact a local CDC in your area to learn about next steps and how to apply
The project must also meet public policy goals, such as job creation or economic development in rural or underserved areas.
A Tool For Strategic Growth
The SBA 504 loan program is designed to support business owners making long-term investments in their companies. Whether you’re ready to buy your first property, expand your footprint, or invest in equipment to increase efficiency, the 504 program offers a pathway with lower upfront costs, fixed rates, and long-term stability
FAQ'S withDakota Business Lending
Tyler Byron, Commercial Loan Officer, Dakota Business Lending.
Q: What is the biggest value you see small business owners appreciating most from the 504 program?
A: “The biggest value I often hear small business owners appreciating is being able to inject less cash into their project so they can conserve capital to operate the business. Our program’s 10-15% down payment from the borrower is a really favorable cost of entry for them.”
Q: What sets DBL and CDCs apart from traditional lending institutions?
A: “Dakota Business Lending and other CDCs have the ability and resources to deliver non-traditional lending options to help businesses in all phases. We work to find solutions to keep their business dream going and growing.”
Steve Dusek, President & CEO, Dakota Business Lending
Q: What is most rewarding for you about your job working with the 504 program?
A: “We focus on relationships, not transactions. It is so rewarding to be part of a small business’s journey from dream to success.”
Q: How would you encourage small business owners to approach getting funding?
A: “Don’t be afraid to inquire about all options. Ask a lot of questions and be open and inquisitive to nontraditional resources. Keep exploring until you find what works for you!”
Michaela Schell, Business Development & Outreach Officer, Dakota Business Lending
If you’re planning for the future and want financing that keeps your business’s growth in focus, the SBA 504 loan is worth considering.
Get In Touch
dakotabusinesslending.com
Facebook | /DakotaBizLend
Linkedin| /dakota-business-lending
Twitter | @DakotaBiz
