What collateral does an SBA 504 loan require?

The basic picture: two loans, two liens

A 504 Project is financed in layers. The Borrower contributes cash or land. A Third Party Loan from a bank or other lender covers the largest share and takes a first lien on the Project Property. The 504 loan, made from the proceeds of a CDC Debenture, covers up to 40 percent and sits behind it. Section 120.934 puts the second layer in one sentence: the CDC usually takes a second lien position on the Project Property to secure the 504 loan.

This matters to you as a Borrower because the lien order decides who is paid first from the property if things go wrong. The bank is first and the CDC is second. The Borrower's own contribution sits underneath both loans.

Additional collateral and substitutions

Two sentences in 120.934 add flexibility. First, "sometimes additional collateral is required," which can mean assets beyond the Project Property. Second, in rare circumstances SBA may permit other collateral to be substituted for Project Property. The regulation gives no list and no test for either, and this page does not guess at one. Treat both as a conversation with your CDC.

Section 120.920(b) addresses the other direction. The Third Party Lender may take additional collateral for its own loan only if, in liquidation and unless SBA approves otherwise in writing, it liquidates or otherwise exhausts all reasonable avenues of collection on that additional collateral no later than the disposition of the Project Property, and applies any proceeds to the balance of the Third Party Loan before applying proceeds from the Project Property. The effect is to keep the bank from leaning on the Project Property first while holding other collateral in reserve.

Insurance is part of the collateral rule

The last sentence of 120.934 is easy to skip: all collateral must be insured against such hazards and risks as SBA may require, with provisions for notice to SBA and the CDC in the event of impending lapse of coverage. In practice that means the policy has to be written so that SBA and the CDC hear about a lapse. A lapsed policy on collateral is a compliance problem even if the loan payments are current. Ask your insurance agent to confirm the notice provisions your CDC requires.

How the layers add up

The calculator above splits a Project into the three layers using the rules in 120.910, 120.920 and 120.930. The Borrower contribution is at least 10 percent in ordinary cases, at least 15 percent if the business has operated two years or less or the Project involves a limited or single purpose building, and at least 20 percent if both apply. The Third Party Loans must total at least as much as the 504 loan, and at least 50 percent of total Project cost if the business is new or the asset is limited or single purpose. The 504 loan is generally capped at 40 percent.

For a $10,000,000 ordinary Project: a $1,000,000 contribution, a $4,000,000 504 loan in second position and a $5,000,000 Third Party Loan in first. For the same Project with a new business and a single-purpose building: $2,000,000 contribution, a $5,000,000 first-lien loan and only a $3,000,000 504 loan. The extra risk means more equity and a larger bank share, so a smaller 504 slice.

Administrative costs are added on top of the 504 loan in the calculator, since 120.930 allows 100 percent of eligible administrative costs, and the contribution percentages exclude administrative costs (120.910(a)).

Where this stops

Section 120.934 does not say which particular assets, such as personal guarantees or business equipment, a CDC must take, and the calculator does not model them. It also does not describe what happens in liquidation beyond lien order. For fees see 504 fees, and for the dollar ceiling see the maximum 504 loan amount. Your CDC and lender decide the actual collateral package.

Sources

• 13 CFR § 120.934, Collateral. Read November 2, 2026.
• 13 CFR § 120.920, Required participation by the Third Party Lender. Read November 2, 2026.
• 13 CFR § 120.910, Borrower contributions. Read November 2, 2026.
• 13 CFR § 120.801, How a 504 Project is financed. Read November 2, 2026.

Text read: Electronic Code of Federal Regulations, Title 13, Part 120, in the eCFR, current as of October 29, 2026. Dollar figures and percentages on this page are the ones printed in those sections as of that date; SBA can amend the rule and publishes loan-program procedures (such as SOP 50 10) that add detail this page does not cover. Confirm current terms with a Certified Development Company, an SBA-approved lender or at sba.gov. This page summarizes the regulation and does not replace it.