The quick read: Prepare an SBA 504 application for a building purchase in order: clear SBA's ownership, size and occupancy tests before paying for any report, sign the purchase contract, get the bank's term sheet, then give the Certified Development Company (CDC) one complete package: SBA Form 1244, two or three years of statements and returns, owner financial statements, an appraisal naming SBA and an environmental review. Build it to SOP 50 10 8.1, which SBA lists as effective October 1, 2026.
Two lenders read one file: a bank making the senior loan and a CDC making a loan backed by an SBA-guaranteed debenture. For how the program works, see the SBA 504 program guide; for 504 versus 7(a), see SBA 504 vs 7(a) for owner-occupied property.
Who files it: the CDC; SBA says 504 loans are available exclusively through CDCs
Core form: SBA Form 1244, Application for Section 504 Loans, plus numbered exhibits
Rules in force: SOP 50 10 8, effective June 1, 2025 and revised by SBA notices, until SOP 50 10 8.1 takes effect October 1, 2026
Typical split: bank up to 50% of project cost, CDC up to 40%, borrower at least 10%, per SBA's CDC/504 program page
504 loan limit: $5 million for most borrowers; $5.5 million per project for small manufacturers and certain energy projects (13 CFR 120.931)
What goes into an SBA 504 application for a building purchase?
An SBA 504 application for a building purchase is SBA Form 1244 plus exhibits the CDC builds from your documents: the purchase contract and cost estimates, the bank's term sheet, business and personal financial statements, tax returns, projections, an appraisal, an environmental review and, for a holding-company purchase, the terms of its lease to your operating company.
SBA uses Form 1244 to review eligibility. The business discloses 100% of its ownership; each Associate, including owners of 20% or more, officers, directors, managing members and any key employee running day-to-day operations, signs a personal section covering criminal history, bankruptcy and lawsuits; and the CDC completes the rest and uploads it to SBA.
The form also asks how many jobs the loan will create or retain over the next two years. A 504 project must create or retain one job per amount of 504 funding that SBA sets by Federal Register notice (13 CFR 120.861), or meet a listed community development or public policy goal while the CDC's portfolio meets its job average, and the application must say how (13 CFR 120.862).
Since March 1, 2026, the applicant also signs a citizenship and residency certification, attached to Form 1244 until SBA publishes an updated form (SBA Procedural Notice 5000-876626).
Which eligibility tests should you clear before paying for reports?
Clear five tests before you pay for an appraisal or environmental report: every owner must be a U.S. citizen or national whose principal residence is in the United States, the business must be small under SBA's size rules, it must occupy enough of the building, it must bring the required equity, and the loan must fit SBA's limit.
- Ownership: Under SBA Policy Notice 5000-876441, effective March 1, 2026, 100% of direct and indirect owners must be U.S. citizens or U.S. nationals whose principal residence is in the United States, and lawful permanent residents may not own any percentage of the applicant, the operating company or the eligible passive company, the holding company that owns the building. Form 1244's printed text, which predates the notice, still mentions lawful permanent residents.
- Size: Including affiliates, tangible net worth of no more than $20 million and average net income after federal income taxes of no more than $6.5 million for the two preceding fiscal years, or SBA's industry size standard (13 CFR 121.301).
- Occupancy: For an existing building, occupy at least 51% of the rentable property and lease out no more than 49%; for new construction, occupy at least 60% and permanently lease no more than 20% (13 CFR 120.131). SBA's SOP counts common areas but not stairways, elevators or mechanical areas, and keeps tenant rent out of the repayment analysis.
- Equity: At least 10% of project cost; 15% if the business has operated two years or less or the building is limited or single purpose; 20% if both apply (13 CFR 120.910). SBA's SOP lists hotels, gas stations, car washes and medical facilities among its limited or special purpose examples.
- Loan size: The 504 loan, the CDC's SBA-backed portion, is capped at $5 million per borrower and affiliates, or $5.5 million per project for small manufacturers and certain energy projects (13 CFR 120.931).
- Taxes: Under SBA's SOP, an applicant that has not filed required federal tax returns is not eligible, and the CDC must verify the business is current on federal, state and local taxes.
SBA's 504 page also lists qualified management expertise, a feasible business plan and the ability to repay, and it excludes speculation or investment in rental real estate.
Which documents does the bank need, and which does the CDC need?
The CDC files the SBA application, so most exhibits run through it, but the bank issues the term sheet the CDC must include and can order an appraisal that serves both lenders; each document below has a reviewer, an SBA rule behind it, and a delay that rule creates when the document is late or wrong.
Table: SBA 504 building-purchase documents, who reviews them and why
| Document | Bank or CDC | Why | Common delay |
|---|---|---|---|
| Document SBA Form 1244, each Associate's section and the citizenship certification | Bank or CDC CDC | Why SBA reviews eligibility from it; 100% of ownership must be disclosed | Common delay An ineligible owner anywhere in the chain blocks the loan unless fully divested before SBA issues the loan number |
| Document Purchase contract, cost estimates and itemized professional fees | Bank or CDC Both | Why SBA requires the full or partially executed purchase agreement and key cost documents | Common delay A change in the 504 portion of cost after approval forces the debenture to be re-priced |
| Document Bank letter of intent or term sheet | Bank or CDC Bank issues it; CDC files it | Why States the bank's terms and why it will not finance the whole project | Common delay The application is incomplete without it |
| Document Business financial statements and federal tax returns | Bank or CDC Both | Why Two years under SBA's alternative size standard, three under the industry standard | Common delay Figures that disagree with IRS transcripts must be reconciled before debenture funding |
| Document Interim balance sheet and income statement, with receivables and payables aging | Bank or CDC CDC | Why Dated within 120 days before submission to SBA | Common delay A file that slips needs new interims |
| Document Two years of projections, with assumptions | Bank or CDC CDC | Why Required where appropriate and when historical cash flow does not cover debt service | Common delay SBA requires support for revenue growth and expense cuts |
| Document SBA Form 413 and last year's personal return for each 20% owner and guarantor | Bank or CDC CDC | Why Owners of 20% or more generally must guarantee the loan | Common delay Dated within 90 days under SOP 50 10 8.1 (120 under version 8) |
| Document Debt schedule, prior government financing and affiliates' statements | Bank or CDC CDC | Why Feeds the pro forma balance sheet and debt analysis | Common delay Affiliates need the same two or three years |
| Document IRS Form 4506-C or 8821 | Bank or CDC CDC | Why SBA verifies that returns were filed and match the statements | Common delay Unfiled federal returns make the business ineligible |
| Document Appraisal naming SBA as client or intended user | Bank or CDC Bank or CDC orders it | Why Required above $500,000 of estimated value; dated within 12 months of the application | Common delay One prepared for the buyer cannot be used; a value under 90% of the estimate can shrink the debenture |
| Document Environmental investigation | Bank or CDC CDC sets SBA's minimum; the bank may add more | Why Required on commercial property taken as collateral; dated within one year of the SBA loan number | Common delay A sensitive current or past use starts the review at a Phase I |
| Document Occupancy plan and, for a holding company, its written lease to the operating company | Bank or CDC CDC | Why At least 51% business use of an existing building; the lease must run at least as long as the loan | Common delay No closing package until the business will occupy the required share |
Sources: SBA SOP 50 10 8.1 (version 8 for the 120-day comparison), SBA Form 1244, SBA Procedural Notice 5000-876626, and 13 CFR 120.111, 120.131 and 120.160.
In what order should you assemble a 504 application?
Assemble a 504 application in the order the program's own gates fall: confirm eligibility first, then sign the purchase contract, secure the bank's term sheet, open the file with a CDC, order third-party reports, and only then wait on SBA's authorization, the interim loan closing and the monthly debenture sale that repays it.
- Screen eligibility. Apply the five tests above to every owner and affiliate before paying any fees.
- Sign the contract and price the project. At application the CDC may require a deposit of $2,500 or 1% of the net debenture proceeds, whichever is less, refunded if the application is denied (13 CFR 120.935).
- Get the bank's term sheet. SBA's SOP requires the bank's loan to be at least as large as the 504 loan and to run at least 7 years beside a 10-year debenture, or at least 10 years beside a 20- or 25-year debenture.
- Give the CDC the package. The CDC must show that the credit is not otherwise available on reasonable terms without SBA help (13 CFR 120.101), and SBA's Sacramento Loan Processing Center, which reviews all 504 applications, contacts the CDC by email when it needs more information.
- Order reports through the lenders. On loans SBA reviews directly, the processing center must approve the appraisal before closing.
- Receive SBA's authorization, its written agreement with the CDC setting the terms of its guarantee.
- Close the interim loan and finish the project. An interim lender, the bank or another lender, covers the gap between SBA approval and the debenture sale, and the project must be complete, with the interim loan fully disbursed, before the sale, with one narrow escrow exception.
- Wait for the debenture sale. SBA's SOP says debentures are normally sold, and proceeds disbursed, on the Wednesday after the second Sunday of each month; the proceeds repay the interim lender.
SBA's 504 page pegs the CDC's fixed rate to an increment above the 10-year Treasury; see SBA 504 and 7(a) loan rates for that peg, and using an SBA 504 loan to buy a warehouse in Florida for this sequence on a larger purchase.
What changes when SOP 50 10 8.1 takes effect on October 1, 2026?
SBA's SOP 50 10 page lists version 8.1 as effective October 1, 2026, replacing version 8, which took effect June 1, 2025, and for a 504 building purchase the new version raises the cash-flow coverage test, shortens one document date limit, adds another, and puts the bank's underwriting analysis into larger files.
Until then, version 8 and SBA's notices apply; ask your CDC which version will govern your file.
- Coverage: Version 8 requires operating cash flow to cover debt service at least 1:1. Version 8.1 requires historical coverage of at least 1.15:1 on the last fiscal year or the average of the last two, measured as EBITDA over post-closing debt service; short of that, the CDC must analyze at least two years of projections.
- Dates: Personal financial statements must be dated within 90 days instead of 120, and credit reports, which version 8 did not date, must be dated within 90 days.
- Bank underwriting: For projects of at least $5,000,000, the CDC must summarize the bank's underwriting analysis in its credit memorandum and identify any differences from its own conclusions.
- Statements: The CDC's analysis must primarily focus on the highest level available: audited, then reviewed, then CPA-compiled statements, then corporate tax returns.
- Unchanged: the 120-day interim statements, the two- or three-year history, the $500,000 appraisal trigger, the environmental steps and the ownership rule in force since March 1, 2026.
What slows a 504 approval, and how do you avoid it?
SBA's own rules turn five document problems into avoidable delays: financial or personal statements that pass their date limits, an appraisal the lenders cannot use, an environmental review that finds a sensitive past use, tax transcripts that disagree with your books, and an occupancy plan that leaves the business short of the required share at closing.
- Dates: Work backward from the CDC's submission date, using the date limits in the table; under SOP 50 10 8.1, personal statements and credit reports expire fastest, at 90 days.
- Appraisal: Do not order your own. SBA must be named as client or intended user, and a bank-ordered appraisal naming SBA as intended user is acceptable. Above $1,000,000 of estimated value, the appraiser must be state-certified.
- Environmental history: List every known current and prior use of the site at the start. A use on SBA's sensitive-industry list means a Phase I, and SBA will not approve or disburse with known contamination unless the risks are minimized to its satisfaction.
- Tax transcripts: Reconcile statements to filed returns before submission; if you filed an extension, the CDC needs it and proof of estimated tax payments.
- Existing tenants: If a seller's tenant holds space the business needs, SBA allows at most one year after closing to reach the required occupancy, and the CDC must request that in advance and in writing.
- Cost changes: Any change in the 504 portion of project cost after approval forces the debenture to be re-priced.
How do you get lenders competing for your building purchase loan?
You get lenders competing for a building purchase by finishing this file once and showing the same statements, returns, purchase contract and occupancy plan to more than one lender before you accept a term sheet, because the bank's letter of intent is an exhibit in the CDC's application and its terms carry into the SBA package.
YieldStack is a commercial mortgage brokerage. Every credit decision is made by the lender; YieldStack arranges the introductions and negotiates on the borrower's side, and no loan, rate, or closing is guaranteed. The intake is a 5-minute submit, matched against 20,000+ loan programs. Submit your building purchase with the documents in the table above.
The bottom line
Preparing a 504 building purchase is mostly sequencing and dating documents. Clear the ownership, size, occupancy, equity and loan-limit tests; sign the contract and get the bank's term sheet; then give the CDC Form 1244 and its exhibits, each inside its date limit. Build to SOP 50 10 8.1, effective October 1, 2026, which requires historical debt service coverage of at least 1.15:1.