What costs can an SBA 504 loan not finance?

The rule behind the list

Section 120.884 begins with a principle: costs not directly attributable and necessary for the Project may not be paid with 504 proceeds. Then it says the ineligible costs "include, but are not limited to" a specific list. The list is therefore illustrative. An item missing from it can still be ineligible if it fails the principle. That is the opposite of reading a list as complete, and it is the main thing to remember.

The companion rule is on our eligible costs page. Between the two sections, a cost is eligible if it is a listed Project cost or an allowed administrative cost, and ineligible if it fails the direct-attribution test or is on the 120.884 list.

Debt and creditor rules

Paragraph (a) bars debt refinancing, other than interim financing, except as allowed in 120.882(e) and (g). Those exceptions come with checklists, so do not read the bar as absolute, and do not read the exceptions as easy. Paragraph (b) bars using 504 proceeds to pay any creditor in a position to sustain a loss that would shift to SBA all or part of a potential loss from an existing debt. In plain terms, 504 money cannot be used to take a lender who is about to lose money out of its position and put SBA there instead.

Paragraph (c) bars Third Party Loan fees: commitment, broker, finders, origination, and processing fees of the permanent financing. The bank's fees on its own loan are the Borrower's to pay out of pocket, outside the 504 loan, even though some 504 and CDC fees can be financed under 120.883.

Ancillary business expenses

Paragraph (d) lists expenses that surround a business rather than building its Project: working capital; counseling or management services fees; incorporation or organization costs; franchise fees; and advertising. These are not part of buying land, building or equipment, which is what the program finances, so they have to be paid another way. A franchisee buying a building can finance the building but not the franchise fee, and a startup can finance equipment but not the cost of forming the company.

Working capital is the one most often assumed to be allowed. It is not. A 504 loan finances fixed assets and the costs attached to acquiring them; operating cash needs have to come from elsewhere.

Fixed assets that are excluded or limited

Paragraph (e) is about what kind of asset can be financed. Short-term equipment, furniture and furnishings are excluded unless essential to and a minor portion of the Project. Automobiles, trucks and airplanes are excluded outright. Construction equipment is excluded, with one exception: heavy duty construction equipment integral to the business's operations with a remaining useful life of a minimum of 10 years.

The qualifiers matter. A conference-room table for a new office is furniture, which could be allowed if it is a minor, essential part of the Project. A delivery truck is out, however closely it is tied to the expansion. A crane that the business uses daily and that has at least 10 years of life left can be in; a pickup used on job sites is a truck.

Why the line sits where it does

The common thread in 120.884 is that the 504 loan funds long-lived fixed assets and the costs of acquiring them, with SBA's position protected by those assets. Items that wear out quickly, items that leave the premises, items that are not tied to any asset, and uses that move risk onto SBA are the ones the section removes. Thinking in those terms helps with items the list does not mention. If a cost does not become part of a building, land or durable equipment, or does not directly serve acquiring one, expect it to fail the direct-attribution test. That reasoning is an aid to reading the text, not a substitute for it; the CDC decides borderline items.

A quick worked check

A restaurant owner is buying a building for $1,800,000, spending $40,000 on advertising for the reopening, $25,000 on a franchise fee and $60,000 on a delivery van. Only the building (and costs attributable to it) is eligible; the three other items are named in 120.884(d)(5), (d)(4) and (e)(2). Pick each item in the checker above to see the section. Whether a borderline item is "essential" or a "minor portion" is the CDC's call, so ask before you commit to a budget.

Sources

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