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If you have outgrown your current space or cannot find the right property to buy, building from the ground up may be the answer. The good news is that you can use an SBA 504 loan to build a new building, and the progam is well suited for it. Ground-up construction is an eligible use of 504 funds, alongside buying land, renovating an existing property, and purchasing long-life equipment.
This guide explains what qualifies, how the financing and funding timeline work for construction, and how to plan a project so it reaches the closing table without surprises.
By the end, you will know whether an SBA 504 construction loan fits your plans and what to do next.
Yes. An SBA 504 loan can be used to build a new commercial building from the ground up. New building construction is a recognized eligible use of 504 funds, along with the land you build on and the soft costs tied to the project.
The financing follows the same three-party structure as a purchase: a bank funds about 50 percent, a Certified Development Company funds about 40 percent through an SBA-guaranteed debenture, and you contribute around 10 percent. The main difference with construction is the funding timeline, which we cover below.
This makes the 504 program a practical option for owners who want a building designed for how their business actually operates, rather than settling for whatever is on the market.
The 504 program covers more than just the building shell. Eligible project costs for new construction commonly include:
Because many fees are rolled into the financing, your upfront cash need centers on the equity injection plus a few borrower-paid closing items.
The 504 program uses a three-party structure. For a construction project, that structure looks the same on paper as a purchase, even though the funding happens in stages.
This is the part that sets construction apart from a straightforward purchase. The SBA debenture, the CDC portion of the loan, funds after the building is finished, not while it is being built. To bridge that gap, the project uses interim financing during the construction phase.
During construction, a lender provides interim financing to pay contractors and cover costs as the work progresses. Once the building is complete and the project meets program requirements, the permanent SBA 504 debenture funds and takes out the interim financing. The result is the long-term, fixed-rate financing the program is known for.
For construction projects, FBDC offers the 504 Velocity Bridge Loan Program, which can provide up to 90 percent interim financing. It is designed to reduce risk for banks and third-party lenders and keep projects moving toward completion while everyone waits on the permanent debenture. For an owner, that can mean fewer delays and more certainty during the build.
The 504 program is for owner-occupied commercial real estate, not passive investment. For a newly constructed building, your business must plan to occupy at least 60 percent of the space. You can lease out the remainder, which gives growing businesses room to expand into the rest of the building over time. Purely passive or speculative real estate ventures are not eligible.
Here is how a construction project typically moves forward.
Timing depends on the build itself. For a standard purchase, the SBA debenture often funds around 45 days after closing. When construction is involved, that funding waits until the building is complete, so the overall timeline is longer and tied to your construction schedule. Planning for this early, with interim financing in place, keeps the project on track and avoids cash-flow gaps mid-build.
Construction is a major commitment. The 504 structure makes it more manageable.
You can absolutely use an SBA 504 loan to build a new building. Land, construction, equipment, and soft costs are all eligible, and the program pairs a low down payment with a long-term fixed rate. The key thing to understand about construction is the funding sequence: interim financing carries the project through the build, and the permanent SBA debenture funds once the building is finished. As long as your business will occupy at least 60 percent of the new space, ground-up construction is well within reach.
The best next step is to map out your numbers and timeline with someone who structures these deals. FBDC has helped fund more than $14 billion in projects over 35-plus years, including construction projects backed by the 504 Velocity Bridge Loan Program. Reach FBDC at (813) 348-0660 or info@fbdc.net to talk through your build.
Frequently Asked Questions
Yes. New building construction is an eligible use of SBA 504 funds, along with the land, site work, equipment, and soft costs tied to the project. The financing follows the standard three-party 504 structure.
Interim financing covers costs during construction. Once the building is complete and the project meets program requirements, the permanent SBA 504 debenture funds and takes out the interim financing, leaving you with long-term, fixed-rate financing.
Most borrowers contribute about 10 percent of total project costs. The contribution can rise to 15 percent for newer businesses or special-purpose properties, and to 20 percent when both factors apply.
Yes. For a newly constructed building, your business must plan to occupy at least 60 percent of the space. You can lease out the rest, which gives room to grow into the building over time. Passive or speculative projects are not eligible.
It is an FBDC program that provides interim or bridge financing for SBA 504 projects, including up to 90 percent interim financing for construction. It helps reduce lender risk and keep projects moving while the permanent debenture is pending.
