Which projects are ineligible for an SBA 504 loan?

Projects versus businesses versus costs

The 504 rules sort ineligibility into three buckets, and mixing them up is a common error. Ineligible businesses and general ineligible uses of proceeds sit in subpart A of part 120, which applies to SBA loans broadly. Ineligible Project types specific to 504 are in 120.881, the subject of this page. Ineligible costs inside an otherwise eligible Project are in 120.884, covered on our ineligible costs page. A request can fail at any level.

Section 120.881 starts with the phrase "in addition to," which tells you it adds to the subpart A exclusions rather than replacing them. A Project can therefore be an excluded 504 Project even if the business itself is eligible, and a business can be excluded before the Project is even considered.

The relocation rule

Paragraph (a) is aimed at moves that would hurt the area the business leaves. It makes ineligible the relocation of any of a small business's operations which will cause a net reduction of one-third or more in the workforce of the relocating small business, or a substantial increase in unemployment in any area of the country. Two details deserve attention. The one-third test is a net reduction, so jobs added elsewhere in the move count against jobs lost. And the unemployment test is a separate trigger: a move that stays under one-third can still be a problem if it substantially increases unemployment in an area. The regulation does not define "substantial," so that judgment is made on the facts.

The exception is narrow and has two parts, both required. The CDC must be able to justify the loan because (1) the relocation is for key economic reasons and crucial to the continued existence, economic wellbeing or competitiveness of the applicant, and (2) the economic development benefits to the applicant and the receiving community outweigh the negative impact on the community the business is leaving. Note who justifies: the CDC does, in its analysis, not the applicant by assertion.

The calculator above runs the arithmetic only. A business with 90 jobs that will have 60 after the move has a 30-job net reduction, which is exactly one-third, and "one-third or more" includes exactly one-third. A business with 90 jobs that will have 61 has a reduction of 29, under one-third, so that prong is not triggered, although the unemployment prong still applies.

The foreign project rule

Paragraph (b) is plain: Projects in foreign countries are ineligible, defined as loans financing real or personal property located outside the United States or its possessions. The test is where the property is. A U.S. business that exports, or a foreign-owned business operating a U.S. facility, is not excluded by this paragraph; a loan to buy a building or equipment sitting outside the United States and its possessions is. The regulation does not say here what counts as a possession.

Other eligibility hurdles for a Project

Passing 120.881 does not make a Project eligible. Under 120.880 the Borrower must use the Project Property (an Eligible Passive Company may lease to an operating company) and, with its affiliates, meet a size standard in 13 CFR 121.301(b). The Project must also meet job creation or public policy goals under 120.861 and 120.862, covered on our job creation page. And the costs inside it must be eligible, per the eligible costs page.

A second worked example

A candy maker with 45 employees plans to close a plant in one city and open a larger one in another. It expects 40 jobs at the new plant and none left at the old one. Net, that is a reduction of 5 jobs, about 11 percent, well under one-third, so the first prong is not triggered on those numbers. If instead it will have only 25 jobs after the move, the net reduction is 20 jobs, about 44 percent, and the Project is ineligible unless the CDC can justify it on both grounds. In both cases the unemployment prong is assessed separately, and the figures should be documented the same way: headcount before, headcount after, and where the jobs are.

What to do with this

If you are considering a move, count jobs before and after honestly and talk to the CDC early, since the exception turns on a justification the CDC must be prepared to make. Keep the figures and reasons in writing. This page explains the text and cannot say how SBA will treat your facts.

Sources

• 13 CFR § 120.881, Ineligible Projects for 504 loans. Read November 2, 2026.
• 13 CFR § 120.880, Basic eligibility requirements. Read November 2, 2026.
• 13 CFR § 120.862, Other economic development objectives. 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.