How Does an SBA 504 Work

The Small Business Administration created the SBA 504 loan program for entrepreneurs just like you. Getting an SBA 504 loan is a pretty simple process, but it may seem a bit overwhelming at the start. Basically, you will get two loans: A first lien and a second lien. Let me explain. The first lien is the senior debt which is the bank part and the second lien (or loan) is the guaranteed piece by the SBA. If you're buying a million dollar property, you're financing an existing business expansion, where you can, under the SBA 504 loan program, finance ninety percent of the total cost. You would have to bring in about $100,000. Each loan would fund roughly half of the financed amount - the bank would provide a loan of, say, $500,000 and the Certified Development Company (CDC), or second loan, would be for $400,000. (NOTE: The bank technically makes both loans, one for itself and the second on behalf of the CDC.)