Your Guide to Equipment Financing

Affording the important pieces of equipment in business is not always easy, especially if the required piece will significantly set your business capital back. This is where equipment financing comes into its own. Rather than leasing what you need, you can own what you need outright, straightaway.

The CDC/SBA 504 loan is a government-backed scheme, created to help small businesses purchase vital equipment, real estate, and fixed assets. Should you need plant machinery, specialist equipment, or commercial real-estate, equipment loans can ensure your business can run as intended.

Do You Qualify for SBA 504 Loan?

Much like any loan offered by the Small Business Administration, and any lender in general, your business needs to hit certain requirements to be eligible. In addition to your personal credit score, which needs to be over 680, you will also need a thorough, detailed business plan. It needs to clearly set out where, how, and when you will be using the capital. You also need to explain your business’s proposal for future growth, along with a comprehensive summary of your business.

The specific requirements are:

  • Your business must be a for-profit organization. What this means is that your organization must have a primary goal of making a profit. The majority of businesses within the US fall into this category.
  • Your business must be owned by at least 51% U.S. citizen, or registered aliens with green cards.
  • Your business must conduct its business within the United States.
  • Your business must be a sole proprietorship, partnership, limited liability company, or corporation. The size of your business doesn’t matter overall, however. Whether you are a sole proprietorship running a small retail business or a corporation with 50 employees, you can still be eligible.
  • Your business must occupy at least 51% of the space you are seeking to buy. If you are using your SBA 504 loan for commercial real estate, this clause specifies that your business uses the real estate. It means that you cannot use the loan for real estate investment. Instead, you need to use it for your own premises, office space, or warehouse.
    If you are using the SBA 504 loan to build a new office building, you must use 60% of the space at once and plan to occupy the other 80%.
  • Your business’s net worth must not exceed $15 million. Due to the nature of the SBA, this loan is designed to aid small-medium businesses, rather than multi-million empires.
  • Your business’s net income after Federal income taxes for a full two fiscal years before applying cannot exceed $5 million.
  • Your business must be able to provide 10% or more down payment of the project cost.
  • Your new equipment must have an economic life of at least ten years. This clause rules out using the 504 loan for computers, software, and other equipment which will need updating before ten years.

Not every business will meet this strict eligibility, but nearly all for-profit organizations have the chance. However, the business owner’s personal net worth is not a factor when determining the eligibility of your business.

How Can You Use Your SBA 504 Loan?

SBA 504 loans start from $350,000, an incredible sum of money to ensure your business can afford the necessary equipment or real estate. Primarily, you can use equipment financing to purchase commercial real estate and commercial equipment.

“504 loans have many advantages including: fewer fees than other SBA products; 20-year fixed pricing on the CDC portion of the deal, which is also a below-market rate. They allow for much larger loans than the 7(a) product, as there is no official borrowing cap (TD Bank, for instance, has done some 504 loans of $20 million or more); and 504 loans have no additional collateral requirement.” Tom Pretty, Head of SBA Lending at TD Bank.


Regardless of your niche, if you require heavy machinery and equipment, this is the SBA loan made for such a purpose.

  • An example: A medium-sized fitness center can apply for this loan, and once granted it, can purchase state-of-the-art equipment to boost their business.

Additionally, eligible businesses can also use this particular loan to renovate your current property.

  • An example: If your warehouse needs air conditioning or your office requires substantial structural upgrades, such as improving the parking lot, you can use the SBA 504 loan.

It is worthwhile to note that, if you are using the SBA loan to upgrade your existing facilities into an energy-efficient, green space, the maximum loan amount increases to $5.5million.

  • An example: If you own a small office, and you wish to install solar panels as an alternative energy source, the SBA 504 loan can be used.

You do need to be aware when applying for this loan of the terms which accompany it. The equipment you purchase must have a lifetime of 7-10 years. Any real estate you purchase you must be planning to occupy for 10-20 years. If you want to use the loan for construction, such as building new premises, you need to

What Are Interest Rates for Business Loans SBA 504?

With the SBA 504 loan, you can expect to pay relatively low interest rates. Typically, the interest rates range between 3% – 6% annually, however, this will vary from lender to lender.

What is important to remember is the SBA 504 loan is made of two loans, rather than one. The CDC issues the second part of the loan, specifically for purchasing equipment, real estate, construction, and renovations. The interest rates for this part of the loan is heavily regulated.

With the CDC portion of the loan, you borrow for either a 10-year loan period or a 20-year. Interest rates for a 10-year loan are between 3.69%-5.065%, whereas a 20-year loan is 4.229%-5.604%.

To Conclude

For small-medium business, affording the necessary equipment and real estate can be a challenge. The SBA 504 loan, however, is one solution to this problem. You should consider this loan not only because of the low-interest rates, but the long repayment terms are easier on the cash flow of small business. Not only can you use the capital gained for equipment financing, but to renovate and transform your current business premises to be eco-friendly, and purchase commercial real estate.

Timothy Kelly

Timothy Kelly

Tim has been a writer for over 20 years covering financial markets and small business. In addition to writing about the financial markets, Mr. Kelly writes extensively about digital marketing and SEO. Mr. Kelly attended Boston College where he studied English Literature and Economics, and also attended the University of Siena, Italy where he studied studio art. Mr. Kelly has been a decades-long community volunteer in his hometown of Long Island where he established the community assistance foundation, Kelly's Heroes. He has also been a coach of Youth Lacrosse for over 10 years. Prior to volunteering in youth sports, Mr. Kelly was involved in the Inner City Scholarship program administered by the Archdiocese of New York. Before creating ForexTV, Mr, Kelly was Sr. VP Global Marketing for Bridge Information Systems, the world’s second largest financial market data vendor. Prior to Bridge, Mr. Kelly was a team leader of Media at Bloomberg Financial Markets, where he created Bloomberg Personal Magazine. Contact Tim