SBA 504 Loan vs. Equipment Loan — Which Is Better for Your Business?
Rates and terms verified May 2026. We may earn a referral fee if you apply through our links — this does not affect our analysis or rankings. This guide is for informational purposes only and does not constitute financial or tax advice. Consult your accountant or financial advisor before making financing decisions.
- SBA 504 offers fixed rates of 5.5–7% on the SBA debenture portion (40% of the purchase) with a 10% down payment for established businesses
- SBA 504 takes 30–90 days to fund vs. 24 hours to 2 weeks for conventional equipment loans — rate savings only justify the wait for purchases of $250,000+
- On a $500,000 purchase, SBA 504 lowers the monthly payment to ~$5,254 vs. ~$9,334 for a conventional loan at 9% APR — primarily due to the longer 10-year term
- SBA 504 eligibility requires net worth under $20M, net income under $6.5M, 2+ years in business, and 680+ personal credit; used equipment purchased privately does not qualify
Summary
SBA 504 (the SBA’s fixed-asset financing program for real estate and heavy equipment) loans offer lower rates and smaller down payments than conventional equipment loans for large purchases — but they require significantly more documentation, take 30–90 days to fund, and have strict eligibility requirements. Conventional equipment loans close in days with less paperwork. The SBA 504 loan wins for large purchases (typically $250,000+) where the rate savings justify the complexity. Conventional equipment loans win for smaller purchases, faster timelines, or when SBA (Small Business Administration) eligibility requirements aren’t met. All rates are based on lender-published rates as of May 2026.
- SBA 504 Loan
- The SBA's fixed-asset financing program for equipment and real estate. Uses a three-party structure: 50% from a commercial bank, 40% from an SBA-guaranteed CDC debenture at fixed rates (currently ~5.5–7%), and 10% borrower down payment. Takes 30–90 days to fund. Maximum $5,500,000.
- Certified Development Company (CDC)
- A nonprofit organization certified by the SBA to deliver SBA 504 financing. CDCs handle the SBA-guaranteed debenture portion of the 504 deal. Approximately 270 CDCs operate across the US; find your local CDC at SBA.gov.
- SBA 7(a) Loan
- The SBA (Small Business Administration)'s general-purpose loan program. More flexible than 504 (can combine equipment + working capital), but at higher rates (prime + 2.75%, approximately 10–11% currently) and shorter terms. Maximum $5,000,000.
- Conventional Equipment Loan APR
- Equipment loan rates from non-SBA lenders, ranging from 5–20% APR (annual percentage rate) depending on credit score, lender, and equipment type. Funds in 24 hours to 2 weeks — far faster than SBA programs, but without the SBA rate subsidy for large long-term purchases.
Side-by-Side Comparison
| SBA 504 Loan | Conventional Equipment Loan | |
|---|---|---|
| Rates | Fixed ~5.5–7% (equipment portion) | 5–20% depending on credit |
| Down payment | 10% (established business) | 0–20% (often 0% for qualified borrowers) |
| Max loan amount | $5,500,000 | Varies by lender ($500K–$5M+) |
| Funding timeline | 30–90 days | 24 hours to 2 weeks |
| Eligible uses | Fixed assets: equipment, real estate | Equipment only (for equipment loans) |
| Eligibility | Net worth <$20M, net income <$6.5M | Based on credit and revenue |
| Documentation | Extensive (tax returns, financials, business plan) | Minimal for loans under $250K |
| Occupancy requirement | None for equipment | None |
SBA 504 fixes 40% of the purchase cost at 5.5–7% for 10 years — on a $500,000 equipment purchase, the combined monthly payment drops to ~$5,254 vs. ~$9,334 for a conventional 9% APR loan at 60 months.
FundingCompass research, May 2026
How the SBA 504 Loan Works
The SBA 504 loan has a unique three-party structure that most borrowers don’t encounter in conventional financing:
- 50%: A conventional commercial lender (bank or credit union) provides a first mortgage/lien — standard commercial loan terms
- 40%: A Certified Development Company (CDC) provides an SBA-guaranteed debenture — this is the low fixed-rate piece
- 10%: The borrower contributes a down payment (10% for established businesses; 15–20% for start-ups or single-purpose properties)
The CDC/SBA piece is what makes 504 attractive: the CDC funds the debenture at below-market fixed rates (currently ~5.5–7% for equipment, 20-year terms for real estate). This rate is set by the debenture market and is fixed for the life of the loan — providing rate certainty that conventional variable-rate equipment loans don’t offer.
What qualifies for SBA 504:
- Major machinery and equipment ($250,000+ typically, though smaller projects qualify)
- Commercial real estate (owner-occupied)
- Leasehold improvements for owner-occupied space
- Construction and renovation
What does NOT qualify for SBA 504:
- Working capital
- Inventory
- Used equipment purchased from a private party (must be from a vendor)
How Conventional Equipment Loans Work
Conventional equipment loans are simpler: one lender, one loan, secured by the equipment itself.
Process:
- Apply with bank or online lender
- Credit decision in hours to days (under $250K is often same-day)
- Loan documents signed electronically
- Funding within 24–48 hours of signing
Key features:
- Rate: Fixed or variable, 5–20% APR depending on credit, lender, and equipment type
- Term: 24–84 months
- Down payment: 0% for qualified borrowers (some lenders require first/last payment)
- Collateral: Equipment itself (typically no real estate required)
- Documentation: Minimal for loans under $250K (application + 3 months bank statements typical)
Rate Comparison: When Does SBA 504 Save Meaningful Money?
The SBA 504 advantage grows with loan size. Let’s compare both options on a $500,000 equipment purchase:
| Option A — Conventional Equipment Loan | |
| Down payment | $50,000 (10%) |
| Loan amount | $450,000 |
| Rate | 9% APR, 60 months |
| Monthly | $9,334 |
| Total interest | $60,040 over 5 years |
| Option B — SBA 504 | |
| Down payment | $50,000 (10%) |
| Bank first (50%) | $250,000 @ 8%, 10yr → $3,034/mo |
| SBA/CDC (40%) | $200,000 @ 6%, 10yr → $2,220/mo |
| Combined monthly | $5,254 |
| Total interest | ~$90,480 over 10 years |
| Monthly savings with SBA 504 | ~$4,080/month vs. conventional 5-year loan |
In this example, SBA 504 has a lower monthly payment ($5,254 vs $9,334) primarily because of the longer term (10 years vs 5 years). On a pure rate basis — comparing effective APR (the annualized cost of financing, accounting for all fees and repayment speed) — both are competitive. The real advantage shows for long-lived equipment where you want the certainty of a 10-year fixed rate on 40% of the purchase.
Scenario: $500,000 equipment purchase, 10% down payment ($50,000) — SBA 504 vs. conventional loan
- Conventional loan: $450,000 at 9% APR, 60 months → monthly payment ~$9,334; total interest ~$60,040
- SBA 504: Bank first lien $250,000 at 8% / 10 years + SBA debenture $200,000 at 6% / 10 years → total monthly ~$5,254
- Total interest over 10 years (SBA 504): ~$90,480 — higher due to longer term, but monthly savings of ~$4,080/month vs. the 5-year conventional loan
- Effective APR advantage: SBA 504 wins on monthly cash flow; conventional wins on total interest paid if the loan is repaid in 5 years
Which Should You Choose?
Choose SBA 504 if: you’re purchasing $500,000+ of equipment or real property, have 680+ credit and 2+ years in business, can wait 30–90 days to fund, and want the certainty of a 10–20 year fixed rate on 40% of the purchase (currently 5.5–7%). The monthly payment savings vs. conventional financing are most significant on loans of $500,000 or more — see the rate comparison below.
Choose conventional equipment lending if: you need funding within days, your purchase is under $250,000 (SBA complexity exceeds the rate savings), you’re a startup without complete tax records, or the equipment is used and purchased from a private seller (which excludes SBA 504 eligibility).
When to Choose SBA 504
SBA 504 is the right choice when:
- You’re purchasing equipment costing $500,000+ where the rate savings and longer term meaningfully reduce payment burden
- You qualify (net worth under $20M, net income under $6.5M, business purpose)
- You can wait 30–90 days for funding (not an urgent purchase)
- You want a fixed rate for 10–20 years on the SBA debenture portion
- You’re also purchasing real estate alongside equipment (504 excels here)
- You have 2+ years in business and 680+ personal credit
SBA 504 is NOT the right choice when:
- You need funding in days, not months
- The purchase is under $250,000 (conventional loans are simpler and often equally priced)
- Your business doesn’t meet SBA size standards
- You’ve been rejected for SBA financing previously
- The equipment is used and purchased from a private seller
When to Choose a Conventional Equipment Loan
Conventional equipment loan is the right choice when:
- You need funding quickly (equipment needs are immediate)
- The purchase is under $250,000 (SBA complexity isn’t worth it)
- Your credit is strong and you can get a competitive conventional rate
- Minimal documentation is important (startups, businesses without complete tax records)
- You want to use an equipment lender that specializes in your industry
- The equipment doesn’t meet SBA 504 eligible asset requirements
SBA 504 Eligibility Checklist
To qualify for SBA 504 financing:
- For-profit US business (non-profits excluded)
- Business net worth under $20 million
- Average net income after taxes under $6.5 million (past 2 years)
- Owner-operated (not a purely passive investment)
- Equipment for business use (not investment property)
- Able to show business purpose and ability to repay
- 2+ years in business (typical; start-ups can qualify with stronger requirements)
- 680+ personal credit (typical; lower scores may qualify with strong business)
Certified Development Companies (CDCs) facilitate SBA 504 loans in each region. Find your CDC at sba.gov.
Alternative: SBA 7(a) for Equipment
The SBA also offers 7(a) loans that can be used for equipment:
- Maximum loan: $5,000,000
- Rates: Prime + 2.75% (variable) — approximately 10–11% currently
- Term: Up to 10 years for equipment
- Down payment: Typically 10–20%
- Faster than SBA 504 (2–4 weeks typical) but slower than conventional
SBA 7(a) is more flexible (can combine equipment + operating capital) but at a higher rate than SBA 504’s fixed debenture. For pure equipment purchases, SBA 504 is usually the better SBA product. For mixed-purpose financing, SBA 7(a) is more appropriate.
See the SBA Loans Guide for a full comparison of SBA products.
Frequently Asked Questions
What is a Certified Development Company (CDC)?
CDCs are nonprofit organizations certified by the SBA to deliver SBA 504 financing in their communities. There are approximately 270 CDCs operating across the US. The CDC works alongside a conventional commercial lender to structure the 504 deal — they handle the SBA-guaranteed debenture portion. Find your local CDC at sba.gov.
Can a start-up get an SBA 504 loan for equipment?
Yes, but it's more difficult. Start-ups typically need a 15–20% down payment (vs. 10% for established businesses), stronger personal credit, and more documentation (a detailed business plan and personal financial statement). If you're a start-up, conventional equipment financing with a strong personal guarantor may be faster and more accessible.
How long does an SBA 504 loan take to close?
Typically 30–90 days from application to funding. The multi-party structure (bank + CDC + SBA) adds complexity and review time. If you need equipment within a few weeks, a conventional equipment loan or lease is more appropriate.
Can I use SBA 504 for used equipment?
SBA 504 can be used for used equipment purchased from a vendor or equipment dealer. It generally cannot be used for private-party used equipment purchases (buying directly from another business). Used equipment eligible for 504 must also meet SBA size and eligibility standards.
Is there a minimum loan amount for SBA 504?
The SBA doesn't set a formal minimum for 504, but practically speaking, the complexity of the program makes projects under $150,000–$250,000 inefficient — the legal, appraisal, and origination fees eat up proportionally more of a small loan's value. Conventional financing is simpler and often comparably priced for smaller equipment purchases.