12 Owner-Occupied Businesses That May Use SBA 504 Financing

If your business needs real estate, construction, renovations, or long-term equipment to grow, an SBA 504 loan may be one financing option to consider. But being in a particular industry does not automatically make a business or project eligible.

Businesses eligible for SBA 504 loan financing must meet several requirements. SBA 504 eligible industries are not determined by industry name alone. Eligibility depends on several factors, including the operating company, how the financed property will be occupied and used, the useful life of equipment, and the structure of the overall eligible project.

That distinction matters. A restaurant purchasing the building where it operates may have an eligible project, while a real estate investor purchasing the same type of building primarily to lease to unrelated tenants generally would not. A manufacturer may be able to finance qualifying long-term machinery, while short-life equipment may not qualify.

This guide explains how SBA 504 eligibility works and shows how businesses in several industries may use the program when the owner-occupied business, operating company, and proposed fixed assets meet SBA requirements.

What Is SBA 504 Financing and How Does Eligibility Work?

SBA 504 financing is a small business loan program backed by the U.S. Small Business Administration. It provides long-term, fixed-rate financing to help eligible businesses finance major fixed assets.

The program is intended primarily for operating businesses acquiring, constructing, renovating, or improving long-term fixed assets used in their business operations. SBA currently identifies eligible assets such as land, buildings, and machinery or equipment with a remaining useful life of at least 10 years.

Potential uses may include:

• Real estate purchasing or renovation
• Construction
• Long-term machinery and equipment
• Certain eligible refinancing projects

The Typical Three-Part Structure of an SBA 504 Project

A traditional SBA 504 project is commonly structured approximately as:

• 50% Third-Party Lender Loan
• 40% SBA-backed 504 loan through a CDC (Certified Development Company)
• 10% Borrower Contribution

However, 10% should not be treated as a guaranteed borrower contribution. SBA regulations generally require at least 15% when the operating business has been in operation for two years or less, at least 15% for certain limited- or single-purpose properties, and at least 20% when both conditions apply. Actual project structure depends on SBA requirements and underwriting.

Potential benefits of qualifying sba 504 financing may include:

• Long-term fixed-rate financing on the SBA 504 portion
• Terms of 25, 20, and 10 years, depending on the project
• A borrower contribution that may begin at 10% for qualifying projects
• Financing structured around major fixed assets
• The ability to preserve more working capital than a larger equity contribution might require

SBA states that the program is intended for operating, for-profit U.S. businesses that meet applicable SBA size and other eligibility standards. Eligibility is determined on the individual borrower and project rather than on the industry name alone.

What Determines Whether a Business Is Eligible for an SBA 504 Loan?

Before looking at SBA 504 eligible industries, it helps to look at the underlying eligibility questions.

Is There an Eligible Operating Company?

The business using the financed assets generally needs to be an eligible operating company, for-profit small business. Passive and speculative businesses are generally ineligible, subject to specific exceptions such as qualifying Eligible Passive Company structures. 

Will the Property Be Owner-Occupied?

For the acquisition, renovation, or reconstruction of an existing building, the operating business generally must permanently occupy and use at least 51% of the rentable property. Up to 49% may generally be leased to tenants.

For new construction, the business generally must immediately occupy at least 60% of the rentable property. It may permanently lease up to 20%, while the remaining space is subject to additional planned future-occupancy requirements.

The occupancy requirement is one reason SBA 504 financing should not be described as general financing for investment real estate. 

Is the Asset an Eligible Fixed Asset?

The SBA 504 program may help finance:

• Land
• Existing buildings
• New construction
• Building renovations or improvements
• Long-term machinery and equipment meeting applicable useful-life and fixed-location requirements

Working capital and inventory are generally not eligible uses of standard SBA 504 proceeds.

Does the Equipment Have a Sufficient Useful Life?

For a standard SBA 504 project, fixed assets such as machinery and equipment generally must have a useful life of at least 10 years and be at a fixed location. Short-term equipment, furniture, and furnishings are generally ineligible except in limited circumstances when they are essential to and a minor portion of the overall 504 project.

When evaluating SBA 504 eligible industries, businesses should consider whether the proposed equipment supports an eligible project and meets SBA fixed-asset requirements.

Does the Overall Project Meet SBA Requirements?

An eligible business can still have an ineligible project. The CDC and lender must consider the proposed use of proceeds, occupancy requirement, project costs, borrower contribution, useful life, collateral, repayment ability, and other SBA eligibility and credit requirements.

For that reason, “SBA 504 eligible industries” is best understood as industries that may contain qualifying operating businesses and projects, not as a list of industries automatically approved for financing.

SBA 504 Eligibility Matrix by Business Type

Business type	Potentially eligible project	Common ineligible use	Important condition
Restaurants	Purchase or renovate an owner-occupied restaurant property; install qualifying long-term kitchen or building systems	Working capital, inventory, or short-life furnishings and equipment that do not meet program requirements	The operating restaurant must meet applicable occupancy requirements, and financed equipment must meet useful-life requirements
Logistics companies	Purchase or improve an owner-occupied warehouse, fulfillment center, or distribution facility	Fleet or transportation purchases and working capital	The real estate must primarily support the operating company's business rather than function as passive investment property
Healthcare practices	Purchase or renovate an owner-occupied medical or dental office; finance qualifying long-term diagnostic equipment	Supplies, consumables, working capital, or equipment that does not meet useful-life requirements	The practice must satisfy occupancy requirements and long-term equipment generally must have at least a 10-year useful life
Manufacturing businesses	Acquire or expand a manufacturing facility; purchase qualifying production machinery or automated systems	Inventory, working capital, or short-life equipment	Machinery generally must meet the 10-year useful-life requirement and be used at a fixed location
Childcare centers	Purchase, construct, renovate, or expand a facility operated by the childcare business	Working capital or short-life furniture, toys, and similar items outside permitted project exceptions	The operating childcare business must use the property and satisfy the applicable existing-building or new-construction occupancy requirement
Auto repair shops	Purchase or renovate an owner-occupied repair facility; install qualifying long-term fixed shop equipment	Fleet purchases, working capital, inventory, or short-life tools and equipment	Equipment eligibility depends on useful life and how the asset is incorporated into the project
Hotels and hospitality businesses	Acquire, construct, expand, or renovate a hotel operated by the borrowing operating company	Property acquired primarily as a passive rental or investment asset	A hotel may be considered a limited- or single-purpose property, which can affect the required borrower contribution and project structure
Senior living and care facilities	Purchase, construct, renovate, or expand a facility operated by the eligible care business	Passive investment property or operating expenses unrelated to an eligible refinancing structure	The underlying operating business and its use of the property must meet SBA eligibility requirements
Veterinary clinics	Purchase or renovate a clinic or animal hospital; acquire qualifying long-term diagnostic or treatment equipment	Inventory, short-life equipment, or general working capital	Real estate occupancy and equipment useful life must be evaluated as part of the eligible project
Fitness and wellness businesses	Purchase, construct, or renovate an owner-occupied gym, studio, or wellness facility	Short-life movable equipment, general operating expenses, or inventory	Real estate may qualify even when individual pieces of equipment do not, depending on the project's asset mix
Specialty retail businesses	Purchase or renovate an owner-occupied storefront or commercial facility	Inventory purchases or a property held primarily to generate rental income	The operating company generally needs to occupy at least 51% of an acquired existing building
Construction contractors	Acquire an owner-occupied facility or finance certain heavy-duty construction equipment integral to business operations	Transportation assets and short-life construction equipment	Qualifying heavy-duty construction equipment generally must be integral to operations and have a remaining useful life of at least 10 years

 

Mini Example: Manufacturing

A manufacturer needs additional production capacity and is considering purchasing an existing industrial building along with new production machinery.

Potentially eligible use: The business may qualify to finance the owner-occupied manufacturing building and machinery that meets SBA fixed-asset and useful-life requirements.

Important restriction: Short-life machinery, inventory, raw materials, and general working capital generally should not be treated as standard 504 project costs. Long-term machinery and equipment generally needs a remaining useful life of at least 10 years.

Mini Example: Healthcare Practice

A dental practice has outgrown its leased office and wants to purchase an existing building, renovate the treatment areas, and install new diagnostic equipment.

Potentially eligible use: The acquisition and renovation of an owner-occupied dental office may qualify. Certain permanently located diagnostic equipment may also qualify when it meets applicable useful-life requirements.

Important restriction: If the practice plans to occupy only a minority of the existing building and lease most of the property to unrelated tenants, the project generally would not meet the 51% owner-occupancy standard for an existing building.**

Consumable supplies and ordinary working capital are also not standard eligible 504 uses.

Mini Example: Hospitality

A hotel operating company wants to acquire and renovate the hotel property where it conducts its lodging business.

Potentially eligible use: An operating hotel business may qualify for acquisition, renovation, construction, or eligible long-term building improvements.

Important restriction: SBA 504 financing is not general investment-property financing. The project should involve an eligible operating company using the property in its business rather than an investor simply acquiring real estate for passive rental income.**

In addition, limited- or single-purpose properties may require a borrower contribution above the standard 10% structure.

Mini Example: Childcare

A childcare provider wants to construct a larger facility to accommodate its operating business.

Potentially eligible use: Construction of a childcare facility that will be used by the operating childcare company may qualify as an eligible fixed-asset project.

Important restriction: For new construction, the operating company generally must immediately occupy at least 60% of the rentable property and comply with the program's additional future-occupancy requirements.**

Short-life furnishings or equipment should not automatically be included as eligible 504 assets. Those items generally are ineligible unless they fall within SBA's limited exception for essential items representing a minor portion of the overall project.

What Businesses Are Generally Ineligible for SBA 504 Financing?

SBA rules exclude certain types of businesses from its business loan programs. The list is broader than industry labels and includes a number of specific circumstances.

Examples of generally ineligible businesses include:

• Nonprofit businesses, although certain for-profit subsidiaries may qualify
• Businesses primarily engaged in lending or financing
• Passive businesses owned by developers or landlords that do not actively use or occupy the financed assets, except qualifying Eligible Passive Company structures
• Life insurance companies
• Businesses located outside the United States
• Pyramid sale distribution businesses
• Certain gambling businesses
• Businesses conducting activities that are illegal under federal, state, or local law
• Certain private clubs
• Businesses primarily engaged in political or lobbying activities
• Speculative businesses

Some businesses may require additional review before being considered businesses eligible for SBA 504 loan financing because SBA eligibility depends on the specific business structure and proposed use of assets.

Why Real Estate Developers Are Not Listed as an SBA 504 Eligible Industry

SBA 504 financing should not be presented as general financing for real estate developers purchasing commercial properties for investment. SBA regulations specifically identify passive businesses owned by developers and landlords that do not actively use or occupy the financed assets as generally ineligible, subject to the Eligible Passive Company exception.

An Eligible Passive Company is different from a traditional investment-property structure. It may hold qualifying property and lease it to one or more eligible Operating Companies when the required ownership, lease, guaranty, occupancy, and other SBA conditions are satisfied.

What Uses Are Generally Ineligible for an SBA 504 Loan?

An SBA 504 loan is designed primarily for eligible fixed assets. It is not a general-purpose business line of credit.

Generally ineligible uses include:

• Working capital
• Inventory
• Real estate acquired primarily for speculation or passive rental investment
• Short-life equipment, furniture, and furnishings, except where SBA's limited essential/minor-project exception applies
• Transportation fleet assets
• Certain construction equipment that does not meet SBA's long-term-use requirements
• Advertising
• Franchise fees
• Organization or incorporation expenses
• Debt that does not meet applicable SBA refinancing requirements

SBA specifically defines eligible fixed assets as long-term assets such as land, buildings, machinery, and equipment acquired, constructed, or improved for use in business operations.

Key Takeaways

• There is no automatic list of businesses eligible for SBA 504 loan financing based only on industry.
• SBA 504 eligible industries are better understood as industries that may include qualifying businesses and projects rather than categories that automatically qualify.
• Eligibility generally begins with an eligible for-profit operating company and an eligible fixed asset project.
• Existing owner-occupied business real estate generally requires at least 51% occupancy by the operating business.
• New construction generally begins with a 60% immediate occupancy requirement plus additional future-occupancy conditions.
• Long-term machinery and equipment generally must have a useful life of at least 10 years and meet applicable fixed-location requirements.
• Working capital, inventory, passive investment real estate, and many short-life assets are generally not eligible standard SBA 504 uses.
• Borrower contributions may be 10%, 15%, or 20% depending on the business and project structure.
• A business's specific project should be reviewed against current SBA requirements before eligibility is assumed.

How to Determine Whether Your Project May Qualify

If your business is considering purchasing owner-occupied business commercial real estate, constructing or renovating a facility, or acquiring qualifying long-term fixed assets, the next step is to review the actual project rather than relying on the industry name. 

Gather information about:

• The operating business
• The property and proposed occupancy
• Any space that will be leased to third parties
• The assets being purchased
• Equipment useful life
• Total eligible project costs
• The age of the business
• Whether the property is limited or single purpose
• The proposed borrower contribution

A CDC can then evaluate how the proposed project fits current SBA 504 requirements. Eligibility and financing remain subject to SBA requirements and credit approval.

Understanding whether your business falls within SBA 504 eligible industries requires reviewing the complete project structure, including the operating company, property use, occupancy requirement, and qualifying fixed assets.

Program requirements should be reviewed under the current SBA guidance, including SOP 50 10, Version 8 (effective June 1, 2025), together with subsequent SBA policy and procedural notices that may modify particular eligibility requirements.

Frequently Asked Questions

What industries are eligible for SBA 504 loans?

There is not a simple industry-based approval list. Many for-profit operating businesses may qualify when the business itself is eligible and the project involves qualifying fixed assets. Eligibility depends on factors such as asset use, occupancy, useful life, project structure, and SBA requirements. Speak with a CDC about the specific project.

Can an SBA 504 loan be used to buy investment property?

Generally, no. SBA 504 financing is not intended for real estate acquired primarily for speculation or passive rental investment. Owner-occupied commercial property may qualify when the operating business meets applicable occupancy requirements. Eligible Passive Company structures have separate requirements.

Can SBA 504 financing pay for equipment?

Yes, qualifying long-term machinery and equipment may be eligible. For standard 504 financing, equipment generally needs a useful life of at least 10 years and must meet applicable fixed-location requirements. Short-life equipment is generally ineligible except under a limited project exception. Speak with your CDC about individual assets.