What costs can an SBA 504 loan finance?

The test: directly attributable to the Project

The organizing idea in 13 CFR 120.882(a) is "directly attributable." A cost qualifies when it belongs to the Project itself. The section explicitly includes expenditures the Borrower made with its own funds or from a loan to acquire land used in the Project, or for any other expense directly attributable to the Project, even if paid before applying to SBA for the 504 loan. That prior-spend rule is helpful to a Borrower who has already bought the land.

The flip side is in 120.884, which opens by saying costs not directly attributable and necessary for the Project may not be paid with 504 proceeds. That section is covered on our ineligible costs page; this page concentrates on what is allowed.

The listed eligible costs

Land and other direct costs come first (paragraph (a)). Next, for a Project involving construction, paragraph (b) allows a contingency reserve for cost overruns not to exceed 10 percent of construction cost. On $2,500,000 of construction the largest reserve is $250,000. Section 120.930(c) adds that, on completion, the Debenture amount is reduced by the amount by which the unused contingency reserve exceeds 2 percent of the anticipated Debenture.

Paragraph (c) covers professional fees directly attributable and essential to the Project, such as title insurance, an opinion of title, architectural and engineering costs, appraisals, environmental studies, and legal fees related to zoning, permits or platting. The wording "such as" signals examples, but the qualifiers "directly attributable and essential" still apply to everything you add. Paragraph (d) allows repayment of interim financing, including points, fees and interest. Many Projects are built on a short-term interim loan that the permanent financing then takes out.

Administrative costs in 120.883

Some costs of getting the loan done are not Project costs, but 120.883 lets the 504 loan and Debenture pay them: the SBA guarantee fee, the funding fee, the CDC processing fee, the Borrower's out-of-pocket closing costs other than legal fees (certifications, copying, overnight delivery, postage, messenger services), the CDC closing fee up to a maximum of $10,000, and the underwriters' fee. Because of 120.930, these are added to the 40 percent figure rather than counted inside it. See the fees page for the ceilings.

Refinancing existing debt

Paragraph (e) allows existing debt to be refinanced and added to an expansion cost only when a long list of conditions is met. Highlights: the amount of existing indebtedness cannot exceed 100 percent of the project cost of the expansion; substantially all (75 percent or more) of the debt's proceeds had to go to land and building, building construction or equipment that is eligible under 504; the debt must be collateralized by fixed assets that will also secure the 504 loan unless SBA waives it; the financing must give a substantial benefit, meaning the part of the new installment attributable to the refinanced debt must be less than the old installment; the Borrower must have been current for at least one year; and the 504 terms must be better than the existing ones.

Paragraph (g) is a separate path for a Refinancing Project that does not involve expansion. It requires the applicant to have operated for the full two years before applying and the qualified debt to have been incurred at least six months before the refinancing application. Funding comes from three sources: a Third Party Loan at least as large as the 504 loan, not less than 10 percent from the Borrower, and not more than 40 percent from the 504 loan. The combined 504 and Third Party Loan may be no more than 90 percent of the collateral's fair market value. A fresh 504 refinance under (g) must be disbursed within nine months of approval, extendable by six months for good cause.

Do not assume your debt qualifies. Both paths read as checklists in which every condition must hold. Your CDC will test them against your loan documents.

A worked example

A manufacturer is building a $4,000,000 addition. Construction is $3,000,000, land already owned is part of the Project, appraisal and environmental study fees are $40,000, and a bridge loan costs $60,000 in interest and fees. The contingency reserve could be up to $300,000 (10 percent of $3,000,000). The appraisal, environmental study and bridge loan costs are eligible under (c) and (d). Working capital for new hires is not eligible, no matter how closely tied to the expansion it feels. Try the checker above with each item type.

Sources

• 13 CFR § 120.882, Eligible Project costs for 504 loans. Read November 2, 2026.
• 13 CFR § 120.883, Eligible administrative costs for 504 loans. Read November 2, 2026.
• 13 CFR § 120.884, Ineligible costs for 504 loans. 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.