SBA 504 Loans in Bakersfield
Buy or build the building your business operates from with as little as 10% down, and lock a fixed rate for up to 25 years on 40% of the project.
What Is an SBA 504 Loan?
An SBA 504 loan is a Small Business Administration program that helps a business buy, build, or improve the commercial real estate it occupies. Instead of one loan, it uses two: a bank loan for about half the project and an SBA-backed loan from a Certified Development Company (CDC) for about 40%, with a fixed rate for 10, 20, or 25 years. The owner puts in as little as 10%.
The name comes from Section 504 of the Small Business Investment Act. Nationally, it is how a lot of dental offices, auto shops, warehouses, and restaurants end up owning their buildings. In Kern County, Dan sees it most with medical and dental practices, oil-field service companies buying shop space, trade contractors, and restaurant owners tired of renewing leases.
It is not a fit for everything. 504 cannot pay for working capital, inventory, or buying the business itself, and it cannot finance a building you will lease out to someone else. For those, see SBA 504 vs. 7(a).
How the 50/40/10 Structure Works
Example: a $1,200,000 building in Bakersfield, with both loans on a 25-year amortization.
Bank first loan (50%)
Example rate 7.75%. Usually a 10-year term on a 25-year amortization, so the balance comes due at year 10.
SBA 504 loan from a CDC (40%)
Example rate 6.75%, fixed for the full 25 years and fully paid off at the end. Fees of about 3% are typically financed in.
Your down payment (10%)
Cash, or equity in land you already own. 15% to 20% for new businesses and special-purpose buildings.
Rates are examples for illustration, not quotes. The bank sets its own rate, and the SBA portion's rate is set when the SBA sells its bonds each month, based on Treasury yields at that time.
SBA 504 Amortization Schedule Example
What you still owe on each loan over time, using the same $1,200,000 example.
| End of year | Bank loan balance | SBA 504 balance |
|---|---|---|
| Year 1 | $591,830 | $472,370 |
| Year 5 | $552,041 | $436,156 |
| Year 10 | $481,471 | $374,770 |
| Year 15 | Refinanced or paid off | $288,822 |
| Year 20 | Refinanced or paid off | $168,485 |
| Year 25 | Refinanced or paid off | $0 |
Plan for year 10. On most deals the bank loan comes due after 10 years with about $481,471 still owed in this example, so you refinance that piece at whatever rates exist then. The SBA portion keeps its fixed rate and stays in place. Some banks offer longer terms on the first loan; Dan shops that piece across lenders.
Who Qualifies for SBA 504
What you need
- A for-profit business that meets SBA size standards. Most small and mid-size Kern County businesses do.
- Your business occupies at least 51% of an existing building, or 60% of new construction.
- 10% down, or 15% for a business under two years old or a special-purpose building, and 20% if both apply.
- Cash flow that covers the combined payment, plus personal guarantees from owners of 20% or more.
- A job creation or public policy goal for the project. Most owner-occupied purchases meet one.
What 504 can't pay for
- Working capital, inventory, or paying off unrelated debt
- Buying an existing business (goodwill and customer lists). Use SBA 7(a) for that.
- Buildings you will mostly lease out to other tenants
- Passive real estate investment, lending, and other SBA-ineligible industries
504 can also cover construction, major renovations, and long-life equipment, and in some cases refinance an existing building loan.
I have the same conversation every few weeks. A Bakersfield business owner has rented the same space for five or ten years, the rent has gone up twice, the lease renewal is coming, and they never looked at buying because they assumed the down payment was out of reach. Then I tell them 504 can work with 10% down. Almost none of them knew it existed.
The comparison that changes the decision is rent versus the combined 504 payment. The payment is often close to what they pay now, sometimes a little more. The difference is that every payment builds equity in a building they control, instead of their landlord's.
Where I earn my keep is the bank piece. The SBA portion's rate is the same no matter who you use, but the bank loan's rate, term, and prepayment penalty vary a lot from lender to lender, and that is the piece that comes due in year 10. Shopping it is worth real money.
SBA 504 Questions
What is an SBA 504 loan?
How much do I need to put down on an SBA 504 loan?
How much can I borrow with SBA 504?
Can I use an SBA 504 loan for an investment property?
What are the fees on an SBA 504 loan?
Is there a prepayment penalty on an SBA 504 loan?
How long does an SBA 504 loan take to close?
SBA 504 or SBA 7(a): which is better for buying a building?
SBA and Commercial Resources
Paying Rent on Your Business Space? Let's Run the 504 Numbers.
Send Dan the building and your current rent. He'll show you the side-by-side.