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GlossaryUpdated September 18, 2026

SBA 504 Loan

An SBA 504 loan is a two-part financing: a bank first mortgage plus a fixed-rate second funded by an SBA-backed debenture. A hotel buyer puts in at least 15 percent. The 25-year debenture priced at 6.54 percent in September 2026.

By Luke Thompson, VP & Director, Capital Markets · Matthews Hotel Markets

The structure is set by regulation. Because SBA treats a hotel as a limited or single purpose property, the third-party lender must provide at least 50 percent of project cost,[3] and the borrower at least 15 percent, or 20 percent if the business is also two years old or less.[2] That leaves up to 35 percent for the CDC second lien.

SBA's program page lists a $5.5 million maximum 504 loan, maturities of 10, 20 and 25 years, and rates pegged to an increment above 10-year Treasury issues.[1] Our comparison page works through the $5 million debenture cap that applies to a hotel under SOP 50 10 8.[4] The September 2026 25-year debenture priced at 6.54 percent, fees included, on September 10.[5]

The bank's first lien prices separately, and its rate and terms are set by the lender. 504 proceeds cannot fund working capital or inventory.[1] Owner-operators choose 504 for the long fixed rate on the second. See SBA 7(a).

Worked example

Hypothetical. $6,000,000 hotel project, established operator. Bank first lien at 50%: 0.50 x $6,000,000 = $3,000,000.[3] Borrower equity at 15%: 0.15 x $6,000,000 = $900,000.[2] CDC debenture at the remaining 35%: 0.35 x $6,000,000 = $2,100,000, fixed for 25 years. Check: $3,000,000 + $2,100,000 + $900,000 = $6,000,000. A start-up operator would need 20%, or $1,200,000, and the debenture would shrink to $1,800,000.

Common misconceptions

  • A 504 loan is not one loan. It is a bank first mortgage and a separate CDC second, with two sets of documents and two payments.
  • The published debenture rate is not the rate on the whole financing. The bank's first lien, at least half the project on a hotel, prices separately.[3]
  • 504 money cannot cover working capital or inventory.[1] Opening cash has to come from elsewhere.

Frequently asked

How does an SBA 504 loan work for a hotel?
A bank lends at least 50 percent in first position, a Certified Development Company lends up to 35 percent in second position from an SBA-backed debenture, and you contribute at least 15 percent.[2][3]
What is the SBA 504 rate right now?
The 25-year debenture priced at 6.54 percent on September 10, 2026, fees included. See /rates.[5] The bank's first-lien rate is set by the lender.
How much down payment does a 504 hotel loan need?
At least 15 percent of project cost, because a hotel is a limited or single purpose property. 20 percent if the business is also two years old or less.[2]
What is the biggest hotel I can finance with SBA 504?
The debenture is capped, not the project. SBA's page lists a $5.5 million maximum,[1] and /hotel-financing/sba-7a-vs-504 explains the $5 million cap that applies to a hotel.[4] The bank's first lien sits on top of that.
Should I use 504 or 7(a) for my hotel?
504 gives a long fixed rate on the second lien and needs 15 percent down. 7(a) is one loan, can include working capital, and usually floats. See /hotel-financing/sba-7a-vs-504.

Sources

  1. 504 loans · U.S. Small Business Administration
  2. 13 CFR 120.910, How much must the Borrower contribute? · Legal Information Institute, Cornell Law School
  3. 13 CFR 120.920, Required participation by Third Party Lenders · Legal Information Institute, Cornell Law School
  4. SOP 50 10 8, Lender and Development Company Loan Programs (effective June 1, 2025), Section C, Ch. 1: debenture limits (p. 350) and Limited or Special Purpose Property, which lists hotels (pp. 354-355) · U.S. Small Business Administration
  5. Matthews Hotel Markets September 2026 rate sheet · Matthews Hotel Markets (first-party)

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