CDC/504 financing—stable, long-term capital for facilities and major equipment
The SBA CDC/504 program is built for long-term financing of business owner-occupied commercial real estate and large fixed assets. It pairs a conventional first-lien loan from a bank with a second-lien debenture from a Certified Development Company (CDC), delivering attractive amortization and a predictable fixed rate on the CDC portion. Since 2009, Market Direct Capital has coordinated the bank + CDC teams, aligned projects with occupancy rules, and packaged files to move through credit and closing with clarity.
Why CDC/504 exists
The program encourages local investment, job creation, and long-life asset ownership by operating businesses. With an SBA guaranty supporting the CDC debenture, lenders can extend terms that better match the useful life of a building or major equipment—often stabilizing occupancy cost for the long run.
What 504 can finance
CDC/504 targets fixed assets: purchasing or constructing an owner-occupied building, renovating or expanding an existing facility, site improvements, and heavy or specialized equipment. Working capital and purely passive investment are not 504 uses. For mixed needs, we often combine a 504 solution for real estate with a companion 7(a) or bank line for working capital—keeping each purpose in its best lane.
Business owner-occupied requirements
Eligibility hinges on occupancy. For an existing building, the operating company must occupy at least 51% of the square footage. For new construction, the plan must reach at least 61% at completion with a reasonable path to greater use over time. Leasing the balance is typically acceptable as long as the business remains the primary occupant. We help align floor plans, lease rolls, and projections to satisfy these thresholds.
Typical structure and terms
A common arrangement is the “50/40/10”: a bank first lien for roughly 50% of total project cost, a CDC second lien for roughly 40%, and a borrower injection of ~10%. Start-ups and special-use properties can require higher injections. The CDC debenture is usually a fixed rate for 20 or 25 years, while the bank portion may be fixed or variable with a 10–25 year term and 20–25 year amortization. Eligible soft costs—such as appraisal, environmental, and some closing expenses—are often financeable within the project.
Where 504 shines
Buying a facility your business will occupy. For companies moving from leased space, 504 can “lock in” a portion of the occupancy cost with a long fixed CDC rate. We frequently model a Rent Replacement scenario that compares current lease expense with projected ownership cost, including taxes, insurance, and reserves.
Construction or major expansion. Ground-up projects often pair a 504 take-out with an interim construction facility. We coordinate with the bank and the CDC on draws, inspections, and conversion to permanent debenture funding at completion—while maintaining the 61% occupancy rule.
Large equipment or specialized machinery. When an asset anchors operations for years, 504 can align amortization, useful life, and installation/soft costs within a single project budget.
Process with Market Direct Capital
We begin with a concise pre-qualification and a sources-and-uses plan. From there we package an underwriter-ready file—narrative, construction scope (if applicable), cost breakdown, environmental and appraisal sequencing, and three-statement financial projections. Because a 504 includes two lenders (bank and CDC), our role is to keep requirements synchronized and timelines coordinated, reducing surprises.
Throughout underwriting and closing we anticipate requests, align third-party vendors, and keep you current on milestones—from term sheet to CDC authorization to closing and funding.
Getting started
Share your project scope, occupancy plan, and timeline. We’ll confirm eligibility, outline a practical structure, and map the bank + CDC path to a stable, long-term solution.