What are the basic eligibility requirements for SBA 504 Loans?

To be eligible for a SBA 504 Loan, a small business applicant must:

  • Be an operating business.
  • Be organized for profit.
  • Be located in the United States.
  • Have a tangible net worth less than $15 million, and have an average net income, after Federal income taxes, of less than $5 million for the preceding two years. Industry size parameters also apply.
  • Be able to demonstrate a need for the desired credit.

What types of businesses are ineligible for SBA 504 Loans?

The following businesses are ineligible (13CFR 120.110)

  • Non-profit businesses (for profit subsidiaries are eligible);
  • Financial businesses primarily engaged in the business of lending, such as banks, finance companies, and factors (pawn shops, although engaged in lending, may qualify in some circumstances);
  • Passive businesses owned by developers and landlords that do not actively use or occupy the assets acquired or improved with the loan proceeds (except Eligible Passive Companies);
  • Life insurance companies;
  • Businesses located in a foreign country (businesses in the U.S. owned by aliens may qualify);
  • Pyramid sales distribution plans;
  • Businesses deriving more than one-third of gross annual revenue from legal gambling activities;
  • Businesses engaged in any illegal activity;
  • Private clubs and businesses which limit the number of memberships for reasons other than capacity;
  • Government-owned entities (except for businesses owned or controlled or by a Native American tribe;
  • Businesses principally engaged in teaching, instructing, counseling or indoctrinating religion or indoctrinating religion or religious beliefs, whether in a religious or secular setting;
  • Consumer and marketing cooperatives (producer cooperatives and eligible);
  • Loan packagers earning more than one third of their gross annual revenue from packaging SBA loans;
  • Businesses with an Associate who is incarcerated, on probation, on parole, or has been indicted for a felony or crime of moral turpitude;
  • Businesses in which the CDC or any of its Associates owns and equity interest;
  • Businesses which present live performances of a prurient sexual nature; or derive directly or indirectly more than 5% of their gross revenue through the sale of products or services, or the presentation of any depictions or displays of a prurient sexual nature;
  • A business or applicant involved in a business which defaulted on a Federal loan or Federally assisted financing resulting in a loss to the government. A compromise agreement shall also be considered a loss;
  • Businesses primarily engaged in political or lobbying activities;
  • Speculative business (such as oil wildcatting).

What can the SBA 504 Loan be used for?

A small business must use a SBA 504 Loan for sound business purposes. The use of loan funds is prescribed in each Authorization for Debenture Guaranty. A Borrower may use loan funds from any SBA loan to:

  • Acquire land.
  • Improve a site.
  • Purchase one or more existing buildings.
  • Convert, expand or renovate one or more existing buildings.
  • Acquire and install machinery and equipment having a useful life of ten years or more. These assets must be at a fixed location.
  • Construct real estate.
  • Refinance non-government guaranteed commercial mortgage debt and other eligible business expenses.

Are there restrictions on how SBA 504 Loans can be used?

Yes, there are restrictions. Examples include:

  • A purpose that does not benefit the small business.
  • Investments in real or personal property acquired and held primarily for sale, lease, or investment.
  • General refinancing. However, funds can be used to term-out debt obtained in anticipation of the 504 project which would have been eligible for 504 financing otherwise.
  • Payments or distributions to Associates of the applicant business.

Are farming enterprises eligible?

 Yes, farm related businesses are eligible. Federal financial assistance to agriculturally oriented enterprises is generally made by the United States Department of Agriculture (USDA), but may be made by SBA under the terms of a Memorandum of Understanding between SBA and USDA. Farm-related businesses that are not agricultural enterprises are eligible businesses under SBA’s business loan programs. Financial assistance under the 504 Loan Program is only available for facility enhancement such as fencing, diking, construction of silos, barns, hog and dairy facilities, and farm machinery and equipment with the required economic life span. All farm enterprises are subject to the same eligibility rules as other applicants.

NOTE: Agricultural Enterprises include businesses engaged in the cultivation of soil, produce of crops, and live stock. Farm-Related Businesses are those that supply goods and services primarily used in connection with farming.

Does SBA give special consideration to Veterans?

Yes. SBA will give special consideration to a small business owned by a Veteran or, if the Veteran chooses not to apply, to a business owned or controlled by one of the Veteran’s dependents. If the Veteran is deceased or permanently disabled, SBA will give special consideration to one survivor or dependent. SBA will process the application of a small business owned or controlled by a Veteran or dependent promptly, resolve close questions in the applicant’s favor, and pay particular attention to maximum loan maturity. For SBA loans, a Veteran is a person honorably discharged from active military service.

What are SBA’s lending criteria?

The applicant, including an Operating Company, must be creditworthy. Loans must be sound as to reasonably assure repayment. SBA will consider:

  • Character, reputation, and credit history of the applicant (and the Operating Company, if applicable), its Associates, and guarantors.
  • Experience and depth of management.
  • Market demand for the borrower’s product or service.
  • Past earnings, projected cash flow, and future prospects.
  • Ability to repay the loan with earnings from the business.
  • Sufficiency of invested equity to operate the business on a sound financial basis.
  • Potential for long-term success.
  • Nature and value of collateral (although collateral will not be the sole reason for denial of a loan request).
  • The effect any affiliates may have on the small business applicant.

What is PPBL's service area for the SBA 504 Loan Program?

Pikes Peak Business Lending is certified through SBA to administer the 504 Loan Program in Colorado.


What is the purpose of the SBA 504 Loan Program and why does it exist?

The SBA 504 Loan Program provides economic development financing that is designed to encourage private sector investment in fixed assets, the results of which increases productivity and creates new jobs. The local tax base is also improved by way of adding assets on which taxes are based. The program provides long-term, low down payment, reasonably priced fixed-rate financing to healthy and expanding businesses that have the probability of creating new jobs.

What is a Certified Development Company (CDC)?

A Certified Development Company (CDC) is a community-based company approved (certified) by SBA to promote economic growth within its area of operations.

What is the role of the Certified Development Company (CDC)?

The role of a Certified Development Company (CDC) is to:

  • Stimulate the growth and expansion of small businesses primarily through financial assistance; and
  • Offer the SBA 504 Loan Program to eligible small businesses through a full-time professional staff.

Who benefits from the SBA 504 Loan Program?

The SBA 504 Loan Program benefits:

  • The local economy through job creation.
  • Small expanding businesses by reducing equity requirements and providing high leverage financing over long terms.
  • Local government through an increase in the tax base.


Where do the loan funds come from?

The SBA 504 Loan Program is funded through the sale of Certified Development Company (CDC) debentures that are fully guaranteed by SBA. Private investors that are looking for fixed income streams guaranteed by the Fed find this investment attractive. Examples of private investors include pension funds, life insurance companies, large banks, and individuals under certain circumstances. The source of program funding is entirely private. The Federal Government is a guarantor only. Program fees charged to the Program’s participants reimburse the Federal Government for the subsidy expense associated with the guaranty. Bank and non-bank first mortgage lenders, Certified Development Companies, and the borrowers are the source of Federal subsidy reimbursement. This is a no cost program to the Federal Government.

Why is the source of the loan funds important to the program’s existence?

The source of loan funds under the SBA 504 Loan Program is important to the Program’s existence. Most programs requiring continuing Federal subsidy do not enjoy longevity and suffer budgetary risks. The SBA 504 program is not such a program. Given that the source of funding for the program is private and that any Federal subsidy expense is reimbursed by the program participants, there has been little difficulty in raising support in Congress for this well accomplished economic development program.

Should I be concerned about the availability of loan funds for my project?

No, you should not be concerned about the availability of loan funds under this Program. The SBA 504 Loan Program is funded through the sale of debentures to private investors. The debentures are guaranteed with the full faith and credit of the U.S. Government. Governmental guarantees for the 504 debentures are currently under a continuing Congressional resolution. The Federal subsidy for the Guaranty is underwritten and funded by fees charged to the Program’s participants rather than the Fed. Funding for the program is abundantly available with no risk to the Federal Government. Investors find these securities attractive in light of the federally guaranteed rate of return that is competitive among-fixed yield investments.

What role does SBA play in accessing the loan funds?

SBA’s role in accessing funds under the 504 Loan Program is to guarantee the debentures being sold to private investors. Private investors find comfort in knowing that the yield from their investment is guaranteed by the Fed.

What role does Pikes Peak Business Lending play in accessing the loan funds?

PPBL’s role in accessing funds under the 504 Loan Program is to issue the debenture that is guaranteed by SBA. Each month, 200 Certified Development Companies from various communities in the United States pool and sell these Federally insured debentures to private investors. The Certified Development Company processes loan applications through the U.S. Small Business Administration. The Certified Development Company also closes and services its loans to various borrowers.

What is the relationship between PPBL and SBA?

PPBL is certified by SBA to administer its 504 Loan Program, which provides financing to eligible small businesses throughout Colorado.