Understanding SBA 504 Loans: A Powerful Tool for Business Expansion and Commercial Vehicle Financing

The SBA 504 loan is a long-term, fixed-rate financing solution backed by the U.S. Small Business Administration (SBA), designed to help small businesses acquire major fixed assets for expansion or modernization. Unlike general SBA 7(a) loans, which offer broad working capital and equipment financing, the 504 loan program is specifically targeted at helping business owners purchase real estate, buildings, or large equipment needed for business growth.

What Is an SBA 504 Loan?

An SBA 504 loan is a partnership between three key parties: the borrower, a Certified Development Company (CDC), and a traditional lender such as a bank. Typically, the structure includes:

• 50% from a private lender,
• 40% from the CDC via SBA-backed debentures,
• 10% from the borrower as a down payment (this may be higher for startups or special-use properties).

Because of this structure, SBA 504 loans reduce risk for the lender while making it easier for small businesses to access affordable financing. These loans generally offer fixed interest rates and repayment terms of 10, 20, or 25 years, making them ideal for long-term investments.

How Can You Use an SBA 504 Loan?

SBA 504 loans are intended strictly for the purchase or improvement of fixed assets. Acceptable uses include:

• Buying commercial real estate – such as an office building, warehouse, or retail space.
• Constructing a new facility – including ground-up construction or significant renovations.
• Purchasing long-term machinery or equipment – essential for the production or operation of the business.
• Refinancing existing debt – in certain cases, if it originally funded fixed asset purchases.

The loan cannot be used for working capital, inventory, or refinancing unsecured debt. It’s designed to support business expansion by investing in tangible, income-producing assets.

While SBA 504 loans are primarily designed for financing fixed assets like commercial real estate and heavy equipment, they can be used to purchase certain types of commercial vehicles—but only under specific conditions.

Using an SBA 504 Loan to Purchase a Commercial Vehicle

To qualify for 504 loan financing, the commercial vehicle must meet the SBA’s definition of a long-term fixed asset that is integral to business operations. This means:

• The vehicle must have a useful life of at least 10 years.
• It must be essential to the business’s daily function or revenue generation (e.g., a fleet of trucks for a logistics company or a mobile medical unit).
• It must be titled to the business (not a personal vehicle or used for personal reasons).
• The vehicle should be used primarily (at least 51%) for business purposes.

Examples of commercial vehicles that may qualify include:

• Delivery trucks and cargo vans used by a logistics or shipping company.
• Tow trucks or utility trucks used by a service business.
• Specialized vehicles like food trucks, mobile clinics, or construction vehicles (e.g., cement mixers or dump trucks).

What You Can’t Use a 504 Loan For

• Passenger vehicles (e.g., sedans, SUVs) not specifically used for business revenue.
• Vehicles used mainly for personal or commuting purposes.
• Short-term assets or vehicles with limited useful life.

How TrueCore Capital Can Help

Even though SBA 504 loans are a great tool, borrowers must still pay 10% or more of the project’s total cost up front. Making this down payment can be a big challenge for a lot of small business owners. TrueCore Capital can help with that. The customized financing options provided by TrueCore Capital might assist in bridging the gap between your existing finances and the SBA loan requirements.

Whether you need help covering your 10% equity injection or require additional working capital during the transition, TrueCore Capital provides fast, flexible funding with competitive terms. Their deep experience in SBA loan support and small business financing ensures you have a strategic partner throughout the process. With TrueCore Capital, you can secure your SBA 504 loan and confidently move forward with your business expansion goals.

Ready to get started?  Apply Now! Click Here to Fill out our Online Application