s SBA 504 or Bank Loan Better for Florida Small Business?

The answer depends entirely on what you're financing, how much capital you have available, and how long you plan to hold the asset. Both options work. Neither is universally superior. The right choice comes down to matching the loan structure to your specific situation.

This guide breaks down the real differences between SBA 504 loans and conventional bank loans so you can evaluate which makes sense for your Florida business.

The Core Difference in 30 Seconds

A conventional bank loan is straightforward: one lender, one loan, one relationship. The bank assumes all the risk and sets terms accordingly.

An SBA 504 loan splits the financing three ways: a bank provides 50%, a Certified Development Company provides 40% (backed by an SBA guarantee), and you contribute 10%. The government backing reduces lender risk, which translates to better terms for borrowers who qualify.

That structural difference drives every other distinction between these two options.

Side-by-Side Comparison

Factor

SBA 504 Loan

Conventional Bank Loan

Down payment

10% (15-20% for startups or special-use properties)

20-30% typical

Interest rate on CDC portion

Fixed for full term (currently ~6.4%)

Fixed or variable, set by lender

Loan term

10, 20, or 25 years

5-10 years typical, up to 20

Balloon payment

None

Common (5-7 year balloon typical)

Maximum loan amount

$5 million ($5.5M for manufacturing/green energy)

No government cap

Eligible uses

Real estate, heavy equipment, refinancing

Broader flexibility

Approval timeline

60-90 days typical

30-60 days typical

Collateral requirements

Financed asset serves as collateral

May require additional collateral

Fees

~2.17% (financed into loan)

~1% (paid at closing)

When SBA 504 Is the Better Choice

You want to minimize your cash outlay

The 10% down payment requirement is the 504 program's headline benefit. On a $1 million property purchase, you're putting down $100,000 instead of the $200,000-$300,000 a conventional loan would require.

That $100,000-$200,000 difference stays in your business. For many Florida companies, preserving that working capital matters more than saving a fraction of a percent on interest rates.

You're buying property or equipment you'll hold long-term

The 504 program offers terms up to 25 years for real estate and 10-20 years for equipment. Conventional commercial loans rarely extend beyond 10 years, and many include balloon payments after 5-7 years.

A balloon payment means you'll owe a large lump sum at the end of your loan term, even if you've been making regular payments. In 2025 alone, an estimated $600 billion in commercial real estate loans are maturing, forcing business owners to refinance or pay off substantial balances.

With an SBA 504 loan, your payments fully amortize over the loan term. No surprises. No refinancing requirement. The loan you close is the loan you'll have until it's paid off.

You want payment predictability

The CDC portion of a 504 loan (40% of your total financing) carries a fixed interest rate for the entire loan term. Current 25-year rates are around 6.44%.

Conventional commercial loans may offer fixed rates, but often only for an initial period before adjusting. If you're planning a 20-year hold on a property, knowing your payment won't change regardless of what interest rates do has real value.

Your credit profile is solid but not exceptional

SBA loans were designed to help small businesses that might not qualify for the best conventional terms. The government guarantee reduces lender risk, which means CDCs and participating banks can approve borrowers who would face higher rates or larger down payment requirements through conventional channels.

This doesn't mean standards are low. You'll still need good credit, demonstrated ability to repay, and a sound business plan. But the 504 program creates more flexibility than purely conventional underwriting.

When a Conventional Bank Loan Makes More Sense

You need funds quickly

Conventional loans typically close faster than 504 loans. If your timeline is 30-45 days, a conventional loan is more realistic. The 504 process involves coordination between your bank, the CDC, and the SBA, which adds steps and time.

For deals where speed matters more than terms, conventional financing wins.

Your financing needs don't fit 504 requirements

The 504 program has strict eligibility rules. You cannot use 504 funds for:

• Working capital
• Inventory purchases
• Vehicles and rolling stock
• Equipment with less than 10-year useful life
• Properties you won't occupy (minimum 51% occupancy required)

If your financing need falls outside these boundaries, conventional loans offer more flexibility.

You're financing a larger project

While there's no cap on total project size for 504 loans, the SBA portion is limited to $5 million ($5.5 million for manufacturing and green energy projects). For projects well above that threshold, the 504 structure may not provide enough benefit relative to the added complexity.

Large commercial projects often work directly with banks or through commercial mortgage-backed securities (CMBS) lending.

You have substantial equity and want simplicity

If you can comfortably put 25-30% down and prefer working with a single lender, a conventional loan is simpler. The 504 structure involves multiple parties, more documentation, and a longer closing process.

Some business owners value the simplicity of one lender, one loan, one payment, even if the terms aren't quite as favorable.

Your business doesn't meet SBA eligibility requirements

To qualify for any SBA loan, your business must:

• Operate for profit in the United States
• Have tangible net worth under $20 million
• Have average net income under $6.5 million after taxes
• Meet SBA size standards for your industry
• Be owned by U.S. citizens or permanent residents

Nonprofits, insurance companies, lending institutions, gambling businesses, and speculative ventures are ineligible regardless of their financials.

Questions to Ask Yourself

What's the asset? Real estate or heavy equipment with 10+ year useful life? The 504 program was designed for exactly this. Short-term equipment, inventory, or working capital? You'll need conventional financing or other SBA programs like the 7(a).

How much can you put down? If 10% stretches your resources, the 504 program lets you preserve capital. If you have 25-30% readily available, the conventional path is viable.

How long will you hold this asset? The longer your holding period, the more valuable 504's long terms and fixed rates become. For shorter holds, the faster conventional timeline and simpler structure may outweigh better terms.

How quickly do you need to close? Urgent deals favor conventional loans. If you have 90 days and want optimal terms, 504 becomes attractive.

Does your business qualify? Review SBA eligibility requirements honestly. If you're close to the net worth or income limits, or if your business type is excluded, conventional financing is your path.

A Note on Working with Banks

Many Florida business owners don't realize that banks participate in SBA 504 loans. The same bank you'd approach for a conventional loan can often participate in a 504 deal as the first-lien lender.

In fact, banks frequently prefer 504 structures because their portion (50%) sits in first-lien position with a lower loan-to-value ratio than they'd have on a conventional loan. The CDC's second-lien position absorbs risk the bank would otherwise carry.

If a banker tells you that you don't qualify for their conventional program, ask whether a 504 structure might work. The same bank may be able to participate when the risk is shared.

The Bottom Line

For most Florida small businesses buying commercial real estate or heavy equipment, the SBA 504 program offers better terms than conventional bank financing. Lower down payments, longer terms, fixed rates, and no balloon payments create real financial advantages.

But "better terms" isn't the only consideration. Speed, flexibility, and simplicity matter too. Conventional loans serve businesses whose needs don't fit the 504 mold or who prioritize a faster, simpler process over optimal financing terms.

The best approach is to evaluate both options for your specific project. Talk to a CDC about 504 eligibility and terms. Talk to your bank about conventional options. Compare the real numbers for your situation, then decide.

Have questions about whether SBA 504 financing is right for your Florida business? Contact FBDC at (813) 348-0660 or info@fbdc.net to discuss your project with a Business Development Officer.