Every year, the U.S. Small Business Administration (SBA) helps Americans secure billions of dollars in financing so they can start or grow a business. However, we still hear many common myths about SBA 504 loans. While some are harmless misunderstandings, others can cause business owners to forgo the option entirely. That’s why it’s helpful to get the facts right on the 504 Loan Program so you can make an informed decision on what will work for you.

Myth #1:  Successful businesses don’t need an SBA 504 loan.

FACT:  Many successful small business owners use SBA loans because these loans can offer more flexibility than conventional financing.  Benefits include:

  • Longer repayment terms – up to 25 years
  • Low, fixed interest rates
  • Lower down payments
  • Flexible repayment options
  • The ability to include furniture, fixtures and fees
  • An option for refinancing commercial mortgage debt
  • Payment stability
  • Protection from balloon payments
  • The ability to include leasehold improvements
  • Preservation of working capital


Myth #2:  504 Loans can only be paid off twice per year.

FACT:  A 504 loan can be paid off any month throughout the calendar year, but the calculation is based on the semi-annual debenture dates.  Payoff amount includes the remaining principal, prepayment premium (if still applicable) and interest/servicing fees due through the next upcoming debenture date.

  • The payoff window for any given month opens on the 2nd Thursday and closes on the 3rd Thursday
  • Semi-annual debenture dates are determined by the funding date (i.e. if a loan funds in January, the debenture dates are January 1st and July 1st, February funder – February 1st and August 1st, etc.)
  • In order to meet the debenture date, the 504 loan must be paid off the month prior (i.e. for a February 1st debenture date, the loan must be paid off in the January cycle).  Please note:  if a debenture date is missed, the borrower will incur six months of interest and servicing fees


Myth 3:  SBA is a direct lender.

FACT:  SBA works with local financial institutions to guarantee a portion of its small business loans and is not, generally, a direct lender. With a federal promise to recoup some of the losses if a borrower can’t make loan payments, financial institutions lend to SBA borrowers with greater confidence. Of course, this guarantee from the SBA only applies to borrowers and financiers that meet its qualifications and approval process.


Myth 4:  The pre-payment penalties are too high with a 504 loan.

FACT:  The prepayment penaly declines in an accelerated fashion over the first 10 years and is eliminated in year 11.  And, because there are lower fees associated with 504 loans, the 504 is oftentimes the more affordable choice.  Please refer to our guide, Common Myths Associated with the 504, for a more detailed explanation.


How to Get Started

Contact our team of qualified lenders, who are experts at helping small business owners get approved for SBA 504 loans that can help them compete, grow and succeed.