Last reviewed November 2026
On a 504 project the bank makes the senior loan and often the interim loan, and a Certified Development Company (CDC) closes the SBA-backed second loan. Here is how the pieces fit and what the bank's documents need.
How a 504 project is financed
A typical 504 project has three sources: the bank (the Third Party Lender) provides 50% or more of project costs with a first lien, the CDC provides up to 40% through a debenture that SBA guarantees in full, and the borrower contributes at least 10%. The borrower contribution rises to 15% for a new business (two years or less) or a limited or special purpose property, and to 20% when both apply. No more than 50% of eligible project costs may come from federal sources.
| Structure | Bank (first lien) | CDC / SBA debenture | Borrower |
|---|---|---|---|
| Standard | 50% | 40% | 10% |
| New business, or limited or special purpose property | 50% | 35% | 15% |
| Both | 50% | 30% | 20% |
The debenture is generally capped at $5 million per business, including affiliates, and at $5.5 million per project for small manufacturers and eligible energy projects. Check the SOP for how those limits combine with any 7(a) loans.
The bank's commitment and the Third Party Loan
The bank's commitment or term sheet must be in place when the CDC applies. On projects with total costs of $5 million or more, the CDC folds the bank's underwriting analysis into its own credit memorandum, so expect to share it.
SBA's rules shape the bank's loan documents in a few specific ways:
- No early call, cross-default, deem-at-risk or demand provisions unless the loan is in default.
- The bank's loan must be at least as large as the net debenture proceeds, and at least 50% of project costs for new businesses and limited or special purpose property.
- Minimum maturity: at least 7 years when the 504 loan is 10 years, and at least 10 years when the 504 loan is 20 years (13 CFR 120.921).
- No future advances after the project is complete, other than to collect, protect collateral or protect the lien.
- The bank's lien is subordinate to the CDC/SBA lien as to prepayment penalties, late fees, other default charges and default-rate interest.
- If the bank takes additional collateral beyond the project property, it must pursue that collateral first and apply those proceeds before project property proceeds, unless SBA agrees otherwise.
- The bank must give the CDC and SBA written notice of default within 30 days and at least 60 days before foreclosure.
The CDC and the bank sign SBA Form 2287, the Third Party Lender Agreement. It is the only intercreditor agreement a CDC may sign without SBA's prior written consent, so plan on Form 2287 rather than the bank's own intercreditor form. Read it alongside the bank's loan documents to be sure they line up.
Interim financing
Because the debenture is sold only after the project is complete, someone has to fund the CDC's share in the meantime. The interim lender is often the same bank. It can use a separate interim note repaid from the debenture proceeds plus a permanent note, or a single note that is paid down by the net debenture proceeds.
At debenture closing the interim lender signs SBA Form 2288, the Interim Lender Certification, which covers how it disbursed the interim loan and other items under 13 CFR 120.891 and 120.892. If the bank cannot give those certifications, the debenture cannot fund and the bank keeps the interim loan. Keep draw records, lien releases and change orders in a form that supports the certification from the first draw.
Debenture closing and funding
The CDC and its counsel are responsible for closing the 504 loan and preparing the debenture closing package, which SBA counsel reviews using SBA Form 2286. The bank's role is to deliver what the CDC needs: payoff and interim loan figures, the interim lender certification, evidence of the bank's lien and title coverage, and copies of the bank's recorded documents. Ask the CDC early for its debenture pricing calendar so the bank's deliveries arrive before the cutoff.
Download the SBA 504 bank-side closing checklist (PDF).
How KS can help
Kennedy Sutherland LLP has closed SBA 504 loans for banks. On the bank side, the firm prepares commitment letters, interim and permanent loan documents that fit SBA's Third Party Loan rules, reviews Form 2287, and handles the interim lender certification.
Kennedy Sutherland LLP also offers CDC-side 504 debenture closing work: preparing the 504 loan closing documents, assembling the debenture closing package for review by SBA counsel using SBA Form 2286, and coordinating the interim loan payoff and debenture funding with the bank and the CDC. On any project, the firm confirms which party it represents before work begins.
Fixed-fee quotes are available for SBA and USDA loan closings. Initial consultations for lenders are free. Call 210.259.3885.
This guide is general information for lenders and borrowers, not legal advice. Reading it does not create an attorney-client relationship. SBA, USDA and FSA rules change often, so confirm the current program requirements and the terms of your loan's authorization or commitment before relying on it. Kennedy Sutherland LLP is a private law firm. It is not affiliated with or endorsed by SBA, USDA or FSA.
Sources
- SBA SOP 50 10 8.1, Lender and Development Company Loan Programs (effective Oct. 1, 2026)
- SBA Information Notice 5000-882227, Technical Updates to SOP 50 10 8.1 (Sept. 25, 2026)
- SBA SOP 50 10 8.1, Appendix 1, Forms and Related SOPs (form names and numbers checked Nov. 15, 2026)
- 13 CFR 120.921, terms of Third Party Loans
- SBA, 504 loans
- SBA Form 2287, Third Party Lender Agreement
- SBA Form 2288, Interim Lender Certification
- 13 CFR part 120, Business Loans (eCFR)
Sources checked November 2026.